Converting inherted IRA to Roth
There are differing opinions online about whether a non-spouse beneficiary can convert their inherited IRA to a Roth. Some of the differences seem to be based on when the article was written. Can you provide me with the latest information on whether the Roth converation option is available for non-spouses?
Thanks.
Permalink Submitted by Alan Spross on Mon, 2009-07-27 20:08
At present, a non spouse can convert an inherited qualified plan to an inherited Roth IRA, but CANNOT convert an inherited traditional IRA to an inherited Roth IRA. The non spouse beneficiary Roth conversion of the inherited qualified plan was first available in 2008 and was part of the Pension Protection Act of 2006. This inconsistency between the various options could result in further changes down the road allowing the inherited IRA to also be converted, but there are no bills pending in Congress at this time to do that.
Note that even with the conversion of a non spouse inherited 401k, the Roth is still an inherited Roth and subject to RMDs for the beneficiary, just as an inherited traditional IRA is subject to RMDs starting in the year following the owner’s death. 2009 is an exception because 2009 RMDs have been waived.
Permalink Submitted by Bruce Steiner on Mon, 2009-07-27 21:49
While I think an argument can be made that a nonspouse beneficiary may be able to convert an inherited IRA to a Roth, I am not aware of any authority, or even any published commentary, supporting such a position. I hope I’ll have a chance to apply for a private letter ruling on this.
Ann: what published commentary is there that might support this?
Permalink Submitted by Ann Vanderslice on Tue, 2009-07-28 12:53
This site from 2008 refers to it, but indicates a clarification was in the works. I couldn’t find if the clarification was issued.
http://www.fairmark.com/news/08032701-inherit-convert.htm
Permalink Submitted by Alan Spross on Tue, 2009-07-28 18:45
The TCA was signed in Dec, 2008. The following is copied from the same website as part of an article released in Jan, 09:
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Inherited IRAs
Conversions are not permitted for an IRA you inherit from a person other than your spouse. Guidance issued by the IRS in March 2008 seemed to indicate these conversions would be permitted, but a technical corrections law passed in December 2008 clarified they are not permitted.
When you inherit a traditional IRA from your spouse you’re permitted to elect to treat this IRA as your own. If you make this election, you can convert the IRA to a Roth IRA if you meet the other requirements described on this page.
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Note that we still have a considerable inconsistency in the tax law that will probably be corrected sooner or later, most likely by allowing the non spouse inherited IRA to also be converted. As Bruce indicated, a letter ruling request might expedite the process.