Roth IRA conversions in contemplation of shortened life expectancy
Taxpayer age 85 and not in good health wishes to begin converting portion of his IRA to Roth IRA over the next three years (a third each time). He has never had a Roth IRA prior.
If he does this and does not survive the initial 5 year holding period what are the consequences to his children who would be named beneficiaries of his Roth IRA?
Does holding period carry over for kids for earnings to come out tax free?
Year 2 and Year 3 conversions I do not believe carry a new 5 year holding period – correct?
Thx
Howard
Permalink Submitted by Alan - IRA critic on Thu, 2021-06-03 22:50
Correct. If the first conversion is this year, the gains generated in the Roth IRA will be taxed if they are distributed prior to 2026. However, since the vast majority of the Roth will be the converted amounts for the first 5 years, the kids could still take out a large portion of their interest tax free, since the gains come out last. By the time they have to drain the inherited Roth accounts under the 10 year rule, the entire balance will be tax free, and since there are no annual RMDs under the 10 year rule, leaving the balance alone provides more time for the inherited Roths to generate tax free gains.