Can You Reinvest Your RMD into a Roth IRA?

Shawn Plummer, CRPC

Chartered Retirement Planning Counselor

Reinvesting RMD into a Roth IRA: Not Advisable

Reinvesting your Required Minimum Distribution (RMD) from a traditional IRA or 401(k) into a Roth IRA is technically possible, but it’s not typically advisable. Here’s why:

  • Tax Implications: RMDs are taxable as income. When you reinvest this amount into a Roth IRA, you would be using after-tax dollars.
  • Contribution Limits: Roth IRAs have annual contribution limits. For 2024, the limit is $7,000, or $8,000 if you’re age 50 or older. Your RMD could easily exceed this limit.
  • Five-Year Rule: For Roth IRAs, withdrawals are tax-free only if the account has been open for at least five years and you’re over 59½. This rule could negate the tax benefits of a Roth IRA for those who start late.

Alternative: Simplified Issue Life Insurance with Living Benefits

Instead of a Roth IRA, consider a simplified issue life insurance policy with living benefits, particularly for long-term care purposes:

  • Protection for Long-Term Care: These policies can cover expenses related to nursing homes or assisted living, reducing out-of-pocket costs.
  • Beneficiary Protection: They also provide financial protection for your beneficiaries.
  • Ease of Application: Simplified issue policies are geared towards seniors and typically require just a phone interview for underwriting, without the need for a medical exam.

Comparison of Reinvestment Options

FeatureRoth IRA ReinvestmentSimplified Issue Life Insurance
PurposeRetirement savingsLong-term care and beneficiary protection
Tax TreatmentTax-free withdrawals (conditions apply)Death benefits typically tax-free; long-term care benefits vary
Contribution Limits$7,000 – $8,000 (2024)Based on policy terms
Age ConsiderationsBeneficial for younger individualsDesigned for seniors
Medical UnderwritingNot requiredMinimal (phone interview)
Accessibility of FundsSubject to age and time constraintsDepends on policy terms

Conclusion

While reinvesting RMDs into a Roth IRA is an option, it’s not generally recommended due to tax implications and contribution limits. Instead, a simplified issue life insurance policy with living benefits could be a more strategic choice, especially for addressing long-term care needs and providing for beneficiaries. This approach offers a practical solution for seniors, balancing the need for financial security and ease of application.

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Shawn Plummer, CRPC

Chartered Retirement Planning Counselor

Shawn Plummer is a Chartered Retirement Planning Counselor, insurance agent, and annuity broker with over 14 years of first-hand experience with annuities and insurance. Since beginning his journey in 2009, he has been pivotal in selling and educating about annuities and insurance products. Still, he has also played an instrumental role in training financial advisors for a prestigious Fortune Global 500 insurance company, Allianz. His insights and expertise have made him a sought-after voice in the industry, leading to features in renowned publications such as Time Magazine, Bloomberg, Entrepreneur, Yahoo! Finance, MSN, SmartAsset, The Simple Dollar, U.S. News and World Report, Women’s Health Magazine, and many more. Shawn’s driving ambition? To simplify retirement planning, he ensures his clients understand their choices and secure the best insurance coverage at unbeatable rates.

The Annuity Expert is an independent online insurance agency servicing consumers across the United States. The goal is to help you take the guesswork out of retirement planning and find the best insurance coverage at the cheapest rates

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