Is it possible to roll an RMD into a Roth IRA?

Dear Liz: I’m about to begin taking required minimum distributions. Is it possible to place my annual distribution into a Roth IRA? I realize I would owe taxes on the RMD, but if I could move it into a Roth, I assume I would avoid future capital gains taxes. I’m retired and not earning wages, so I wasn’t sure whether I’m even allowed to contribute to a Roth IRA.

Answer: No. IRA contributions, whether to a traditional IRA or a Roth IRA, require earned income at least equal to the amount contributed. They are also capped. The limit in 2026 is $7,500, with an additional $1,100 allowed for people 50 and older.

There is, however, another route to the tax-free growth you’re after. Traditional retirement money can be converted to a Roth IRA without earned income. Qualified Roth withdrawals are tax-free, and the original owner is not subject to required minimum distributions.

That said, conversions later in life can be complicated. They are usually taxable, and they can temporarily increase Medicare premiums, make more of your Social Security benefits taxable and push you into a higher tax bracket. It’s wise to speak with a tax professional before making a conversion.

Also remember that you cannot convert the RMD itself. You must first take the required distribution for the year before converting any additional money.

Dear Liz: Why do you appear to discourage older homeowners with highly appreciated properties from selling because of the tax hit? Recently, someone said they could not move out of a family home because they would owe $400,000 in taxes. Why not show the calculation: if the tax is $400,000, then even at a 20% capital gains rate, that means they realized $2,000,000. After tax, they still walk away with $1,600,000. People asking the question you answered need to either recognize that they still have a great deal of money after taxes, or realize that they are mistakenly treating their entire profit as if it were taxed at 100%.

Answer: If you’re referring to the couple who wanted to use the proceeds from selling their home to help provide down payments for their children, your math is a little off.

The couple said selling their paid-off home would bring in more than $1 million in proceeds. But proceeds are not the same as taxable gains. The tax bill depends on the home’s original purchase price, qualifying improvements, selling costs and the $500,000 home-sale exclusion available to eligible married couples.

Taxable gains from a home sale can affect finances in much the same way as Roth conversions. They can raise Medicare premiums, make more Social Security benefits taxable and push other income into higher brackets. Some taxpayers also owe the 3.8% net investment income tax.

In addition, the couple was not saying they were unable to sell their home — they wanted to. My point was simply to remind them that their generosity could come with major financial consequences.

Your larger point is still valid, though. Taxes matter, but they should never be the only thing considered in a major financial decision.

Dear Liz: From personal experience after selling a longtime residence, I know tax return information is shared with the Social Security Administration. If the two-year look-back shows a high enough modified adjusted gross income, Medicare premiums can rise sharply. There are appeal options, but a one-time home sale does not necessarily qualify.

Should the couple consider a home equity line of credit to raise cash without creating a tax bill?

Answer: That’s one option a financial planner might recommend, although HELOCs usually have variable rates and require monthly payments, which can be difficult for retirees.

Another possibility is a reverse mortgage. It generally costs more, but it does not require monthly loan payments. However, interest and fees add to the balance, reducing the equity left for future needs. Borrowers still must pay property taxes, insurance and maintenance, and the loan typically comes due when they sell the home or permanently move out.

Again, though, taxes are only one part of the decision. A planner can help sort through the choices and identify the option that best fits the couple’s goals and needs.

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