When my Father in-law passed away and I picked up the tax and investing responsibility for my Mother in-law, the first thing she shared with me was that my Father in-law had a quarterly ritual of partial tax payments. I continued the conversation and talked about RMDs, the required minimum distributions she was taking from her IRA. You might ask how these two things are related. Here’s the connection – the form for the RMD, whether paper or online, offers you an option for how much tax you want withheld. Regardless of when the RMD is taken and tax withheld, it’s a payment made for the tax year.
Each situation is unique, but in this case, Mom’s RMD is more than the tax due right to the top of the 15% single bracket. So, after explaining the strategy of Topping off your bracket with a Roth Conversion, we agreed that the time and effort was less than for the 4 tax payments.
Whether Roth conversions are part of your bigger plan or not, this strategy, paying your year’s tax bill from your RMD can help reduce your paperwork, check writing, and tax related stress over the year. If this is for you or as in my situation, for a loved one,