Can I Reinvest My RMD Into a Roth IRA?

Required Minimum Distributions (RMDs) and Roth Individual Retirement Accounts (IRAs) are two significant components of retirement planning. This article explores the fundamentals of RMDs and Roth IRAs, addressing whether RMDs can be reinvested into a Roth IRA.

Required Minimum Distribution Fundamentals

Required Minimum Distributions (RMDs) represent the minimum amounts that must be withdrawn annually from most employer-sponsored retirement plans and traditional IRAs once the account holder reaches a certain age. The primary purpose of RMDs is to ensure that taxes are eventually paid on tax-deferred retirement savings.

RMDs apply to various types of retirement accounts, including traditional IRAs, SEP IRAs, SIMPLE IRAs, 401(k) plans, 403(b) plans, and 457(b) plans. Roth 401(k)s are also subject to RMDs, though Roth IRAs are exempt from RMDs for the original owner. The age at which RMDs begin is generally 73 for those who turn 73 after December 31, 2022.

Failing to take a full RMD by the deadline can result in substantial penalties. The penalty for not withdrawing the correct amount is 25% of the amount not distributed. This penalty can be reduced to 10% if the RMD is taken in a timely manner and a reasonable explanation is provided to the Internal Revenue Service (IRS).

The calculation of an RMD involves dividing the account balance as of December 31 of the previous year by a life expectancy factor provided by the IRS. The specific life expectancy table used depends on factors such as whether the account holder’s spouse is the sole beneficiary and is more than 10 years younger.

Roth IRA Contribution Eligibility

Contributing to a Roth IRA offers the benefit of tax-free withdrawals in retirement, provided certain conditions are met. A fundamental requirement for contributing to a Roth IRA is the presence of “earned income.”

Earned income generally includes wages, salaries, professional fees, and other amounts received for personal services rendered. Income derived from self-employment, such as net earnings from a trade or business, also qualifies as earned income.

Conversely, several types of income do not qualify as earned income for Roth IRA contribution purposes. These exclusions include investment income, such as interest, dividends, and capital gains. Pension or annuity income, Social Security benefits, unemployment compensation, income from passive activities, or deferred compensation also do not meet the earned income criteria for Roth IRA contributions.

Annual contribution limits are established by the IRS and can change periodically. For 2025, the maximum amount that can be contributed to a Roth IRA is $7,000, with an additional catch-up contribution of $1,000 allowed for individuals age 50 and over. These limits apply to the total contributions made across all Roth and traditional IRAs for an individual. Eligibility to contribute the full amount to a Roth IRA is also subject to income phase-out rules. For 2025, contributions begin to phase out for single filers with modified adjusted gross income (MAGI) between $146,000 and $161,000, and for married couples filing jointly with MAGI between $230,000 and $240,000. Individuals whose MAGI exceeds these upper thresholds are generally ineligible to make direct contributions to a Roth IRA.

Reinvesting RMDs into a Roth IRA

Generally, RMDs cannot be directly contributed back into a Roth IRA. This limitation stems from the fundamental differences in how RMDs are categorized versus the requirements for Roth IRA contributions.

RMDs are considered withdrawals of pre-tax money from tax-deferred retirement accounts. When an RMD is distributed, it becomes taxable income to the recipient. These distributions are not classified as “earned income” by the Internal Revenue Service (IRS).

Roth IRA contributions, on the other hand, require the presence of earned income. Earned income refers to wages, salaries, or net earnings from self-employment. Since RMDs do not fall under this definition, they cannot be used as the basis for a Roth IRA contribution.

Therefore, an RMD, once received, cannot be deposited into a Roth IRA as a contribution. It is viewed as a distribution from a retirement account, fulfilling the mandatory withdrawal requirement, rather than income earned through work.

Any contribution to a Roth IRA must be supported by qualifying earned income that the individual has generated during the tax year. This means that if a person receives an RMD but has no other earned income for the year, they cannot contribute to a Roth IRA. The purpose of RMDs is to ensure the taxation of deferred retirement savings, while Roth IRAs are designed to receive after-tax contributions from earned income for future tax-free growth. These distinct purposes prevent the direct “reinvestment” of an RMD into a Roth IRA.

Strategic Management of RMDs and Roth Accounts

While direct reinvestment of Required Minimum Distributions (RMDs) into a Roth IRA is not permissible, individuals can still strategically manage their finances to benefit from Roth accounts alongside their RMDs.

Individuals who are subject to RMDs and also have other sources of earned income can still contribute to a Roth IRA. For instance, if a retiree works part-time or has self-employment income, that earned income can be used to fund a Roth IRA contribution, provided they meet the income eligibility requirements. These contributions are entirely separate from the RMDs and do not rely on the RMD funds.

Once an RMD is distributed, it becomes part of an individual’s taxable income for that year. The funds can then be used for various purposes, such as covering living expenses, making charitable donations, or investing in a taxable brokerage account.

Roth conversions offer a different pathway for moving pre-tax retirement money into a Roth account. This involves transferring funds from a traditional IRA or 401(k) to a Roth IRA, with the converted amount being taxable in the year of conversion. An RMD cannot be converted to a Roth IRA; the RMD must first be taken, and then any additional funds from the pre-tax account can be converted. Any Roth conversion must be executed in addition to the required RMD for that year.