converting inherited trad ira to assumed ira
Earlier this year my mother inherited my deceased father’s ira’s – traditional and also Roth. It looked like that was the best way to go. She is 75 and he would’ve been 70 1/2 year so we delayed until now for obvious tax reasons. Now I see that there are different calculator tables used for inherited vs. assumed ira’s. Also, the next beneficiary will be myself and my brother. If she assumes the ira’s we would be able to spread Dad’s distributions over our lifetime’s. Also, she doesn’t really need the greater amount of money that the inherited distributions would provide her. Our fund company said we could convert the ira’s to assumed, but couldn’t tell us if we would have to take this year’s distribution as inherited or assumed. Neither could our tax accountant. Can you enlighten me to whether we can or even should convert to assumed?
Permalink Submitted by Alan Spross on Fri, 2010-10-22 20:41
Her RMDs for this and future years will be considerably less if she assumes ownership of the IRAs rather than maintaining them in beneficiary format. There is no RMD due this year on your father’s ira if she assumes ownership because he passed prior to his required beginning date. She should therefore retitle the IRA accounts as owner or roll them into her own IRAs ASAP, and immediately update the beneficiary designations on her remaining IRA accounts. Her 2011 RMD will then be based on the year end 2010 total TIRA balance.
Some Roth IRA agreements automatically make the surviving spouse beneficiary the owner. If not, that one should also be retitled in her name, and of course there will be no RMDs as long as she lives. Her holding period for purposes of the 5 year holding requirement is the longer of the year of her first Roth IRA contribution or the first year of your father’s Roth IRA.