Rollovers & Naming a Trust as a Beneficiary: Today’s Q&A Mailbag

Thursday, June 21, 2018

By Jeremy T. Rodriguez, JD
IRA Analyst
Follow Us on Twitter: @theslottreport

Question:
 

Roll over all but $4000 of nondeductible IRA in my Traditional IRA into my SEP IRA, then rollover the $4K basis into my Roth IRA?

Can I do that? Can I do both rollovers in quick succession in the same day so that the Traditional left with the $4K does not accrue the daily interest?

Thank you very much. Fred

Answer:
 

Fred,

A few things to consider. First, you can only do one 60-day rollover in a 1-year period. The rule applies to Roth-to-Roth and Traditional-to-Traditional rollovers. However, direct rollovers/transfers do not count towards this rule. You do not have a problem with the one-rollover-per-year rule because your second rollover is from an IRA to a Roth IRA which is not subject to that rule.

Secondly, keep in mind that the pro-rata rule treats all IRA accounts that you own as one account, including Traditional, SEP and SIMPLE IRAs. Thus, even if you segregate the tax-deferred assets into another IRA before converting the non-deductible contributions to a Roth IRA, the conversion will still consist of both basis (i.e., after-tax funds) and taxable money.

Question:

Saw your stuff on line.  Very helpful.  Quick question….

It is clear that a trust can be named as a beneficiary of an individual IRA.  But can a trust be named as the beneficiary of an inherited IRA from which the inheritor will begin taking annual RMDs?  

Thanks very much

George

 

Answer:

George,

A non-spouse beneficiary that inherits an IRA can name a trust as the beneficiary of the inherited IRA. The only difference here is the beneficiary of that inherited IRA (often called a “successor beneficiary”) will have to continue the RMD schedule of the original beneficiary. For example, Luis inherits an IRA and names a trust for his minor child as his beneficiary. Luis begins taking RMDs at his age 35 using a factor of 48.5 from the Single Life Expectancy Table. He dies at age 40. The trust can now start taking RMDs but will continue using Luis’ factor, minus one for each year that has passed. The factor used in the year of Luis’death is 43.5. The following year the factor for the trust beneficiary will be 42.5.

 

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