Roth Conversion for a TIRA inherited from a spouse
Can a spouse convert an inherited TIRA after becoming the owner?
For example: Mr. Jones dies and leaves his wife a $200,000 traditional IRA. Can Mrs. Jones convert the TIRA after Mr. Jone’s death into a Roth IRA and simply pay the taxes on the $200,000? Are there a pitfalls or special considerations to be aware of?
Permalink Submitted by Alan Spross on Thu, 2011-12-29 18:26
Yes, the surviving spouse can convert part or all of the inherited spousal TIRA to an owned Roth IRA.
The only issue is whether that spouse SHOULD convert and if so how much to convert each year. The spouse should consider that taxes due on the conversion, if they have funds other than the IRA from which to pay them, and what her future tax rates will be if she does not convert. In some cases, her own estate plan would come into play, ie what tax bracket would her beneficiary be in after she passes.
Permalink Submitted by Jeffrey W Evans on Thu, 2011-12-29 20:21
Thanks. Can you point me to a source for that information? In Pub 590, it’s alluded to by stating that an inherited IRA can be treated as their own by the spouse and that a TIRA can be converted, but that assumption has to be drawn from their.
Permalink Submitted by mk foss on Thu, 2011-12-29 23:43
I’m not totally following this. If a surviving spouse inherits an IRA and rolls it over, it’s his or her account that can be converted to a Roth.
If the survivor takes the IRA as a beneficiary, it is an inherited account and cannot be converted to a Roth.
The third choice is where the survivor treats the decedents IRA “as her own” – you cannot find much wirtten about this circumstance but what you do see treats that IRA just as a rollover IRA is treated.
If the IRA were rolled over, you’d be able to find the answer easily.
Permalink Submitted by Jeffrey W Evans on Fri, 2011-12-30 15:22
Found a pretty straight forward answer….
http://fairmark.com/rothira/eligible.htm
Permalink Submitted by Alan Spross on Fri, 2011-12-30 20:20
The likely reason the IRS did not clearly state this in Pub 590 is because once an IRA is considered owned, it is assumed that owners would have all the options of owners no matter how they established the ownership. The IRS would then have stated any exceptions if there were any, but the surviving spouse DOES have all the options of an owner once they establish ownership, which is usually done by rolling the inherited IRA over to their own IRA. Pub 590 does not mention any limitations on the owned IRA by the surviving spouse.