Roth conversion and separate tax return
I have a client whose father died in January, 2008. The value of the IRA account at that time was $600,000. There are two beneficiaries, my client and her sister. These two people are 40 years old (twins). This client has no earned income but her husband has a severance package that is paying income over the Roth conversion limits. Are there any alternatives, including filing separate tax returns so that we could have a conversion. The assets currently have decreased to $400,000 and it may be an excellent time to exercise a Roth conversion.
Any thoughts are appreciated.
Permalink Submitted by Al Fry on Wed, 2008-10-22 15:52
An inherited IRA cannot be converted to a ROTH. So that simplifies their options.
Permalink Submitted by Alan Spross on Wed, 2008-10-22 20:41
This is a situation that may warrant some monitoring, since a non spouse designated beneficiary can now “convert” eligible inherited qualified plans. This is a glaring inconsistency with the current IRA rules, and since the Treasury badly needs tax money, there is a real chance that this may be doable within the next couple years………..subject of course to the usual whims of Washington. Stay tuned.
Note re original post:
Even if this could be converted, filing separate returns also eliminates Roth conversions unless they lived all ALL year. However, if the severance is a lump sum this year, we are only a couple months away from a new year where they might qualify to convert their OWN TIRAs if they have one. They could fund the tax bill for that conversion with extra distributions from the inherited IRA that they cannot convert.