Bene IRA convet to Roth IRA
Can a beneficiary IRA be converted to a Roth IRA. The client did not take the bene IRA required minimums and is now planning ot liquidate within 5 years of deceased owners death. Can the client convert the entire balance of the bene IRA into a Roth IRA.
Permalink Submitted by Anonymous (not verified) on Thu, 2009-07-02 16:43
Unfortunately, he/she is stuck holding the Bene(Inherited) IRA since the IRS does not allow conversions. Also, be careful not to attempt a 60-day rollover. That is prohibited too.
The only way to get out of the 5-year rule is making up the missed RMDs and paying the accumulated penalties. This is assuming they had both options. Remember, 2009 RMDs were waived. In the rare instance the client was the spouse he/she could always assume the IRA and proceed with the conversion (don’t think this is the case, but wanted to mention it).
pmk
Permalink Submitted by Bruce Steiner on Thu, 2009-07-02 21:46
While there is no authority directly on point, I think an argument can be made that a beneficiary of an IRA can convert it to a Roth IRA under existing law. I would consider applying for a private letter ruling if the amount involved were sufficient. Perhaps I’ll have that opportunity in 2010 when the $100,000 income cap for eligibility to convert is no longer in effect.
Permalink Submitted by Anonymous (not verified) on Thu, 2009-07-02 22:29
Is that really in discussion? What argument would you make using the existing rules that clearly state rollovers (which a conversion essentially is) out of Inherited IRAs are prohibited? I can, maybe, see Inherited Trad to Inherited Roth, but not to a regular Roth. Not sure, if that was implied?
pmk
Permalink Submitted by Alan Spross on Thu, 2009-07-02 23:20
I think Bruce was contemplating an inherited Roth. The IRS release of Notice 2008-30 allowing conversions of inherited employer plans for non spouse beneficiaries created an obvious discrepancy in the treatment of employer plans vrs IRAs. It may even result in some retirees retaining their employer plans if the beneficiary is a non spouse who could benefit from a Roth conversion. Perhaps this will lead to either legislation or an IRS ruling allowing inherited IRAs to follow suit on this issue. Besides, it creates more up front tax revenue.