Roth conversions don't require earned income; RMDs can't be combined

The Aug. 27 mailbag from Ed Slott's IRAHelp, where Sarah Brenner is director of retirement education, answers two questions that together draw a sharp line through retirement-income planning. The first asks whether a client can convert a traditional IRA to a Roth IRA in a year with no earned income, and Brenner's answer is yes—earned income is required for a contribution to an IRA or a Roth IRA, but the requirement does not extend to conversions, so anyone with a traditional IRA is eligible to convert.

The distinction is the part worth carrying into a client meeting, because the contribution rule is the one clients hear about, so a retiree who no longer works often assumes the same gate blocks a conversion. But a conversion is not a contribution; it is a move of existing retirement assets from one tax treatment to another, and the compensation test does not apply. For the retired client living on portfolio income and Social Security, the conversion is not closed off by the lack of a paycheck, which changes the conversation from whether they are allowed to act to whether acting makes sense.

The same mailbag handled a second question that runs in the opposite direction, from an IRA owner with both an IRA and a 401(k) who asked whether the required minimum distribution from the IRA could be satisfied by taking extra money out of the 401(k), and Brenner's answer was no. RMDs from multiple IRAs can be aggregated, but an IRA RMD and an employer-plan RMD cannot be combined: the IRA RMD must come from the IRA, and the 401(k) RMD must come from the plan. The distinction is easy to miss because both accounts are retirement money, and a client trying to reduce the number of distributions they track each year will naturally ask whether one withdrawal can cover both. It cannot.

Read together, the two answers map two separate rules. The reporting on the 10-year clock for inherited Roth IRAs has already made the point that Roth accounts are not exempt from deadlines; the conversion rule here is the rare moment where the code hands a client an opening instead of a restriction, and the RMD aggregation rule is the counterweight. Clients who want to simplify retirement cash flow by pulling everything from one account will find the tax code does not care about convenience. For an advisor, the checklist is short: mark conversions as available without earned income, and keep IRA and employer-plan distributions on separate tracking lines. Both need to be in the plan.