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Trusts as Beneficiaries, IRA Contributions for Roth Conversions Highlight Mailbag

If you aren't eligible for a Roth conversion, can you make an IRA contribution then convert to a Roth IRA? We answer that question and one on trusts as IRA beneficiaries in this installment of The Slott Report Mailbag.  As always, we stress the importance of working with a competent, educated financial advisor to keep your retirement nest egg safe and secure. Find out at this link.


We have an inherited IRA where the beneficiary is a Trust and the sole beneficiary of the Trust is the decedent's son. Can you re-title the inherited IRA for the benefit of the son or does the inherited IRA have to remain for the benefit of the Trust since the Trust is the original beneficiary of the decedent’s IRA. The current inherited IRA has been open for several years and the beneficiary has already been taking RMDs (Required Minimum Distributions).

The title of the inherited IRA must have the decedent's name in the title as well as the name of the trust as beneficiary. For example: John Smith deceased (DOD) FBO (For Benefit Of) John Smith trust dated 1/1/11. The RMDs from the IRA, based on the life expectancy of the oldest beneficiary of the trust, must be withdrawn from the IRA annually and deposited into the trust. I assume the trust meets the four requirements to be able to use the oldest beneficiaries life expectancy. The four requirements are:

1. The trust is valid under state law.
2. The trust is irrevocable or becomes irrevocable upon the death of the IRA owner.
3. The beneficiaries of the trust must be identifiable.
4. The trust document must be provided to the IRA trustee no latter than October 31st of the year following the year of the IRA owner's death.

The only time you would be able to ignore the trust is if it terminates. Then the trustee of the trust can request that the IRA be retitled as an inherited IRA FBO the trust beneficiary (in this case, the son). Distributions to trust beneficiaries must continue using the life expectancy established by the trust. If there are multiple beneficiaries, they do not now get to use their own ages. Some custodians are reluctant to transfer the IRA to an inherited IRA for the trust beneficiaries. The transfer cannot be done as a 60-day rollover.


I have a quick question about Roth conversions.

I am not eligible for a Roth contribution this year. If I open a traditional IRA, make a 5,000 contribution, can that traditional IRA be converted this year to a Roth?

Thank you for your prompt attention to this matter.


Yes. You can make a $5,000 contribution, $6,000 if you are age 50 or older, to a traditional IRA, if your earned income supports it. Then at anytime you can convert it to a Roth IRA. You will have to consider all your IRAs when you convert. If you have any other IRA accounts, you will have to use the pro-rata rule.

By Marvin Rotenberg and Jared Trexler
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*Copyright 2011 Ed Slott and Company, LLC


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Thursday's Slott Report Mailbag

Consumers: Send in Your Questions to [email protected]

You recently said that a 401(k) distribution would add to your MAGI (modified adjusted gross income) for the purpose of determining if you are subject to the 3.8% healthcare surtax. What about Roth IRA distributions? Would they also count towards your total MAGI income for surtax purposes?


IRA distributions are exempt from the 3.8% surtax, but taxable distributions from IRAs can push income over the threshold amount, causing other investment income to be subject to the surtax. Because Roth IRA distributions are generally tax-free, they don’t count towards your total MAGI.