Spouse Beneficiary IRA – conversions

Submitted by Mhotchkiss on Thu, 2014-05-15 21:34

In Ed’s book, page 141 2012 edition, he talks about the benefit of the spouse choosing to remain as beneficiary on an inherited IRA from deceased husband primarily being that she could delay RMDs on the account if she is older then decedent.

I’m wondering if there’s another reason to remain as beneficiary given the desire to convert the money. Would the basis, or lack of basis, in the deceased IRA comingle with her own if she rolls it, thus potentially diluting basis in her IRA?

I’m thinking that if she is trying to convert her TD assets and has basis in her IRA, but perhaps not in his, she should remain as bene on his IRA while she converts hers, then roll his to hers if she wanted to?

Can she convert his IRA to Roth while remaining as bene and in so doing, keep their basis’ separate?

Thanks,
Mark



Submitted by Alan - IRA critic on Thu, 2014-05-15 23:34

  • Yes, good thinking. When having basis that is not combinable, it is more tax efficient to convert the account with the highest % of basis. Of course, once RMDs are required on the inherited account when decedent would have reached 70.5, they will be higher than an owned IRA RMD because of the single life table. There is another risk here to the sucessor beneficiary. Say the surviving spouse keep the inherited IRA maintained as such even after RMDs must start, and names a successor beneficiary. If the surviving spouse then passes, the successor beneficiary must continue the surviving spouse RMD schedule, and cannot use their own life expectancy. This could be a large loss of tax deferral for the successor beneficiary. This only happens happens after the spouse must take RMDs, not before.
  • Under current law, an inherited IRA cannot be converted even though an inherited qualified plan can be. For reasons of consistency and tax revenue, I think there is a decent chance that inherited IRAs might be eligible for conversion at some point, but no proposed legislation in sight yet.

Submitted by [email protected] on Fri, 2014-05-16 13:02

ok, thanks. Yes, the idea would be for only a year or two to get her conversion done, then roll his to hers and start over.Best,Mark

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