Inherited IRA – is it included in conversion calc for Roth ?
I have a client who has a large inherited IRA that I realize cannot be converted to a Roth IRA. She does have a smaller IRA that I think she should convert. I would like to consider back door conversions as she is a high income earner and does not qualify to make a roth contribution directly. Does the inherited IRA get included with the rest of her IRA’s when calculating the basis for these back door conversions?
Permalink Submitted by Alan Spross on Fri, 2012-11-16 20:17
No, inherited IRAs are not considered.
Even if they have Form 8606 basis, that basis is never combined with owned IRAs. A separate Form 8606 is used for inherited IRAs (if applicable) and owned IRAs.
A spousal inherited IRA will default to an owned IRA if the spouse beneficiary fails to take an RMD as beneficiary. This would be quite rare, but if the spousal inherited IRA defaulted to ownership, the values would then be combined with any owned TIRA accounts, and so would any inherited IRA basis. A non spouse inherited IRA of course would not be subject to these contingencies as they cannot become owned.