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Converting Inherited Assets to a Roth IRA

Tuesday, July 14, 2009  1 comment

You are a non-spouse beneficiary and you've inherited an IRA or employer plan assets. Can you convert those assets to a Roth IRA? The answer is yes and no.

Yes
Inherited employer plan assets (401(k), etc.) can be directly transferred to a properly titled, inherited Roth IRA. Income tax will be due on the amount converted and must be paid by the beneficiary doing the conversion. Since the funds are in an inherited Roth IRA, required distributions to the beneficiary begin in the year after the plan participant's death. For 2009, the employer plan is not required to offer this option. In 2010 it will become mandatory for the plan to allow a transfer to an inherited IRA or Roth IRA.

No
Inherited IRAs, on the other hand, cannot be converted to inherited Roth IRAs. Only the IRA owner (the person who made the IRA contributions) can do the conversion.

Spouses
A spouse can always move the funds inherited from the deceased spouse to his or her own IRA and then do a conversion to a Roth IRA.

*Copyright 2009 Ed Slott and Company, LLC

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1 comments:

Now there’s a talk going on about people converting their IRAs into Roth Individual Retirement Account. Roth Ira is the best for the people who are on the right side of age, because the Roth IRA allows for tax waiver. You can always compare between the pros and cons of a Roth IRA account and a normal IRA account and then decide upon it.

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Consumers: Send in Your Questions to [email protected]

Q:
Can I transfer money from my IRA to my husband's Roth IRA? I am 35, and he is 36.

Thank you!

Gail Clements

A:
No. The only way your IRA funds can be transferred to your husband’s IRA is in a divorce or after your death. Even then, it would have to be transferred to a similar IRA, for example an IRA to IRA or a Roth IRA to another Roth IRA. In this case, you cannot transfer your IRA into your husband’s Roth IRA.

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