Inherited IRA to ROTH?
Non spouse beneficiary daughter inherited a large IRA ($3+mil) from mother who was 65 years old. Mother had inherited most of the IRA assets from her husband two years earlier when he was 75 years old. Questions:
- Is daughter required to take RMDs? (I understand that the 10 year rule applies here)
- If so, what is the proper calculation?
- If not, can any distribution from the inherited IRA that has no RMD be converted to a ROTH?
- What suggestions do you have to mitigate the very large tax bills ahead?
Thank you.
Permalink Submitted by Alan - IRA critic on Tue, 2025-03-18 17:28
The 10 year rule will apply, but the RMDs in years 1-9 depend on whether mother had either elected to assume ownership of her inherited IRA, or was continuing to treat it as a beneficiary IRA. If it was still a beneficiary RMD, then daughter is a successor beneficiary rather than a designated beneficiary and must continue mother’s RMD schedule. To further complicate this, if the mother failed to take a full beneficiary RMD as required in any year, she defaults to ownership status at the end of that year. As such, even if an inherited IRA is still titled as such, it would have actually become an owned IRA for mother and daughter would not have any RMDs until year 10.
That said, since the 10 year rule will apply to the daughter either way, the annual RMDs will still leave a huge balance and tax bomb in year 10 and she might want to equalize the distributions in each year rather than limiting herself to just the annual RMD.
In no case can an inherited IRA be converted to Roth by a non spouse beneficiary. But if daughter is still working and has access to a qualified plan, she can now max out those contributions as that would provide a small offset to the inherited IRA taxable distributions.
Permalink Submitted by Liz Griffiths on Mon, 2025-03-31 13:57
Thank you!