Withdraw living expenses from IRA or Roth IRA while during Roth Conversions

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Otter Oaks
Otter Oaks Member Posts: 4 Newcomer
edited January 4 in General

Should my living expenses come from my IRA or Roth IRA when those are my only forms of income? I'm doing backdoor Roth conversions to lower my RMD also. Is it better to do a backdoor Roth in Jan or Dec?

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  • MatthewD
    MatthewD FreeTaxUSA Team Posts: 247
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    Hi Otter,

    It really doesn't matter where your living expenses come from. The IRA is a taxable distribution whereas the Roth distribution is not. Living expenses will not lower your taxable distribution.

    Since a Roth does not have an RMD requirement, converting an IRA to a Roth can lower your RMD requirement later, but you will be taxed on the conversion if the IRA was a deductible contribution. Keep in mind that a backdoor Roth is only when you have nondeductible IRA contributions. I recommend doing the conversion in December, making it simple to report come tax time.

    To learn more about Backdoor Roths, read our articles here.

    https://community.freetaxusa.com/kb/articles/60-how-do-i-report-a-backdoor-roth

  • Otter Oaks
    Otter Oaks Member Posts: 4 Newcomer
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    Couple of points of clarification. I misspoke, I'm doing straight IRA to Roth conversions to lower my future RMD, not backdoor Roths. Also, all my assets currently reside in either a traditional IRA or Roth IRA. Each month, I withdraw from my traditional IRA to cover my living expenses, so this is a taxable distribution. Now my thought is to withdraw from the Roth all year long and do a IRA to Roth conversion in Dec and pay estimated taxes in Jan. There would be no taxable event all year until Dec. No income or short or long term capital gains.

  • MatthewD
    MatthewD FreeTaxUSA Team Posts: 247
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    Hi Otter,

    This seems like a reasonable strategy and allows you to postpone paying estimated taxes until Jan of the following year. It sounds like you have things figured out.

    As FreeTaxUSA agents, we really cannot endorse, promote or advise on tax planning strategies. However, if other members from the community want to chime in, they are welcome.