Inherited Ira by a nonspouse
If a child inherits an Ira as a nonspouse can it be converted to a Roth Ira, I can’t seem to find it in Publication 590?
If a child inherits an Ira as a nonspouse can it be converted to a Roth Ira, I can’t seem to find it in Publication 590?
Permalink Submitted by tomd37 on Fri, 2009-11-20 20:36
No, an IRA inherited from a non-spouse cannot be converted to a Roth IRA. The inherited IRA must also be kept separate from any other IRA, either existing or and IRA started later. RMDs from the inherited IRA must commence on or prior to December 31st of the year after the death of the original owner. See Table I in IRS Publication 590 for the factor to be applied based on the age of the recipient of the inherited IRA. That factor decreases by the amount of 1.0 each year after the initial RMD.
I don’t have a reference for the rule about the non-spousal inheritance, but am sure of my words. Just went through it all when our son passed away and left an IRA to his sister.
Permalink Submitted by tomd37 on Fri, 2009-11-20 20:47
Johnasims,
I believe the reference you might be looking for is on page 20 of IRS Pub 590 under the section “Inherited from someone other than spouse” where it states …..you cannot roll over any amounts into or out of the inherited IRA. I believe a conversion is a form of rollover.
Maybe someone more qualified will address your questions.
Permalink Submitted by john sims on Sun, 2009-11-22 02:11
[quote=”[email protected]“]Johnasims,
I believe the reference you might be looking for is on page 20 of IRS Pub 590 under the section “Inherited from someone other than spouse” where it states …..you cannot roll over any amounts into or out of the inherited IRA. I believe a conversion is a form of rollover.
Maybe someone more qualified will address your questions.[/quote]
Thank you for your help, I’ll check the publication.
Permalink Submitted by tomd37 on Sun, 2009-11-22 02:29
More information on rollovers are contained on pages 23-26 of Pub 590. I have always found it handy to have my own personal copy of certain IRS Publications, including 590. You can order a free copy at http://www.irs.gov under the caption forms & publications.
Permalink Submitted by Anonymous (not verified) on Mon, 2009-11-23 14:13
Recent IRS EP newsletter states that rollovers from qualified plans to non-spouse beneficiaries can go to an “inherited Roth IRA”
Wonder why they would allow rollovers from qualified plans but not straight up conversions from existing inherited IRAs?
Permalink Submitted by Alan Spross on Mon, 2009-11-23 18:55
An excellent question, and this inconsistency may lead to further changes. Perhaps inherited IRAs will also be eligible for conversions at some point as a solution to the inconsistency. The current situation will probably result in more retired employees leaving their employer plan balances in place if they have a non spouse beneficiary. Not only is the transfer to an inherited Roth an option that the beneficiary would not otherwise have, the transfer to either an inherited TIRA or inherited Roth IRA will become mandatory for plan years starting after 12/31/09.
I recall that prior editions of Pub 590 did have a clear statement that non spouse inherited IRAs could not be converted, but it was not in a logical section of the publication. The current edition does not appear to have the statement anywhere. That leaves the rollover restrictions as the only indication that these IRAs cannot be converted.
Permalink Submitted by Anonymous (not verified) on Mon, 2009-11-23 22:36
Does anybody have a cite to something authoritative (other than older versions of Pub 590) that existing inherited IRAs (owned by non-spouse death beneficiaries) cannot be converted to Roth in 2010? Thanks.
Permalink Submitted by Alan Spross on Mon, 2009-11-23 23:00
The following is copied from Sec 408(d)3 regarding IRA rollovers:
>>>>>>>>>>>>>>>>>>>>
(3) Rollover contribution
An amount is described in this paragraph as a rollover contribution if it meets the requirements of subparagraphs (A) and (B).
(A) In general
Paragraph (1) does not apply to any amount paid or distributed out of an individual retirement account or individual retirement annuity to the individual for whose benefit the account or annuity is maintained if –
(i) the entire amount received (including money and any other property) is paid into an individual retirement account or individual retirement annuity (other than an endowment contract) for the benefit of such individual not later than the 60th day after the day on which he receives the payment or distribution; or
(ii) the entire amount received (including money and any other property) is paid into an eligible retirement plan for the benefit of such individual not later than the 60th day after the date on which the payment or distribution is received, except that the maximum amount which may be paid into such plan may not exceed the portion of the amount received which is includible in gross income (determined without regard to this paragraph). For purposes of clause (ii), the term “eligible retirement plan” means an eligible retirement plan described in clause (iii), (iv), (v), or (vi) of section 402(c)(8)(B).
(B) Limitation
This paragraph does not apply to any amount described in subparagraph (A)(i) received by an individual from an individual retirement account or individual retirement annuity if at any time during the 1-year period ending on the day of such receipt such individual received any other amount described in that subparagraph from an individual retirement account or an individual retirement annuity which was not includible in his gross income because of the application of this paragraph.
(C) Denial of rollover treatment for inherited accounts, etc.
(i) In general
In the case of an inherited individual retirement account or individual retirement annuity –
(I) this paragraph shall not apply to any amount received by an individual from such an account or annuity (and no amount transferred from such account or annuity to another individual retirement account or annuity shall be excluded from gross income by reason of such transfer), and
(II) such inherited account or annuity shall not be treated as an individual retirement account or annuity for purposes of determining whether any other amount is a rollover contribution.
(ii) Inherited individual retirement account or annuity
An individual retirement account or individual retirement annuity shall be treated as inherited if –
(I) the individual for whose benefit the account or annuity is maintained acquired such account by reason of the death of another individual, and
(II) such individual was not the surviving spouse of such other individual.
>>>>>>>>>>>>>>>>>
Section C(i) clearly indicates that rollover treatment is disallowed for any inherited IRA, and C(ii) defines an IRA that was inherited by a non spouse must be treated as “inherited”, ie assumption of ownership is not allowed.
All Roth IRA conversions are considered as two part transactions, first a distribution and second a rollover to the Roth IRA.
The IRS has never ruled positively on a rollover request from a non spouse inherited IRA to any other type of plan including an inherited Roth IRA. Further, the 2010 conversion provisions did not include any changes with respect to eligible rollovers other than lifting the income limit and marital status limits.
Permalink Submitted by Anonymous (not verified) on Mon, 2009-11-23 23:10
Thanks, Alan, so you’re saying that all conversions of TIRAs to Roth are considered rollovers within the meaning of 408(d)(3) but that “rollovers” from qualified plans are governed by a different section of the code that doesn’t prohibit non-spouse beneficiaries from “rolling” to an inherited Roth IRA.
Think I’m getting it now, thanks.
Permalink Submitted by Alan Spross on Mon, 2009-11-23 23:46
Correct. The green light to do the conversion rollover (via direct transfer) from a QRP came as quite a surprise. See Q&A #7 in the attached IRS Notice 2008-30, which made the conversion optional to the plan. Later, at the end of 2008, WRERA made the transfer of an inherited QRP mandatory for plan years starting after 12/31/09.
http://www.irs.gov/pub/irs-drop/n-08-30.pdf
Permalink Submitted by MARK SKIBBE on Mon, 2013-10-28 19:41
Facts: December 15, 2012 Father dies at age 80 having been taking RMD’s from his traditional IRA for years and having already taken his 2012 RMD. The FMV of the IRA is $325,000 as of 12/31/12 and there is one named beneficiary, his 50 year old son. The son does not get around to setting up and funding the Inherited IRA until 3/15/13 – when the FMV of the old IRA has fallen to $220,000. Is the first RMD the son must take by 12/31/13 calculated on the $325,000 or the $220,000 value?? I can’t find where it precisely says that the decedant’s IRA value of 12/31/12 is to be used and NOT the 3/15/13 FMV of the newly estalished Inherited IRA……… Any help???
Permalink Submitted by Alan - IRA critic on Tue, 2013-10-29 00:42
Q–6. How is the benefit determined for purposes of calculating the required minimum distribution from an IRA?A–6. For purposes of determining the minimum distribution required to be made from an IRA in any calendar year, the account balance of the IRA as of December 31 of the calendar year immediately preceding the calendar year for which distributions are required to be made is substituted in A–3 of §1.401(a)(9)–5 for the account balance of the employee. Except as provided in A–7 and A–8 of this section, no adjustments are made for contributions or distributions after that date.