Making a Roth conversion before taking full RMD for this year
My husband has a large IRA. His annual RMD is over 200K. He has a Roth he created while still working/pre-RMDs when he converted a 401k from a former employer. We wanted to do a Roth conversion in 2026. Our FA said ok. They knew my husband had no taken his RMD for 2026. The FA just transferred certain number of individual shares in several companies to a new Roth account. It has been profitable this year. They did not withhold any estimated tax due based on full RMD amount plus the Roth conversion amount.
Now I read it is "illegal" to create a Roth before you have taken that year's RMD. We contacted our FA. They talked to their firm's legal--these FA are w/Merrill Lynch and also a new CPA we engaged this year, a few weeks ago. Both ML advisors and the CPA say that we just need to withdraw the full RMD and pay tax since we will pay tax on the Roth + RMD+whatever else income is earned In 2026. Most of our other assets are in municipal bonds whose ROI is mainly tax free. Their opinion is that his IRA has sufficient funds to pay out the full RMD AND the Roth amount so doing one before the other is moot.
But I read that if this Roth is not returned to the IRA, and the profit is not declared as ordinary income and placed in a different account and tax paid on it--that there is a 6% recurring penalty by keeping it inside the new Roth.
I also read the deadline to correct this error/mistake/screwup is Oct 15 of this year.
So I am not so cavalier. Sorry if this is not a clear explanation. I am about ready to take a Xanax because I am so stressed. We did not intend to break any rules doing this. And our FA certainly didn't give us accurate advice either...but hindsight is always 20/20 they say.