Roth Conversion w/ Inherited IRA
I have a client whose husband died this year. Husband was 63. The wife is only 55. She elected to move her husband’s IRA into an inherited IRA rather than doing a spousal rollover so she could access those funds before 59.5 without penalty. She will implement a spousal rollover after 59.5.
The titling of this IRA is “Jane Doe Bene IRA John Doe (Decd)”.
Can my client do a Roth conversion of $20,000 (no tax w/h) from this account into a Roth IRA in her name or perhaps into an inherited Roth IRA?
I know non-spouses can definitely not convert Inherited IRA money into a Roth IRA but thought there might be an exception for a spouse.
Permalink Submitted by Alan - IRA critic on Sun, 2022-12-11 23:51
Client can take a distribution and roll it over to an owned Roth IRA, but not likely to an inherited Roth IRA. The owned Roth would be created as a conversion, and if she withdrew any of the converted funds prior to 59.5 she would incur a 10% penalty for failing to hold the conversion for 5 years or until 59.5.
Permalink Submitted by Brandon Blanchard on Tue, 2022-12-13 14:21
Thanks so could she move $20,000 from the inherited IRA direclty into a Roth IRA in her name? Or would she first need to move $20,000 from the Inherited IRA into an IRA in her name (spousal rollover) and then convert $20,000 from her IRA into a Roth IRA?
Permalink Submitted by Alan - IRA critic on Tue, 2022-12-13 15:50
She can roll directly into the owned Roth IRA without rolling first into a traditional IRA. However, distribution taxes depend on how much Roth IRA basis she already has in other Roth IRA and the Roth IRA ordering rules. This particular account adds conversion basis to her Roth accounting, and if this is her only Roth IRA, any distributions up to 20k before age 59.5 will trigger the 10% recapture penalty. If this is a concern she should just continue the inherited TIRA account. That said, conversion taxes may be lower this year since this is the final year she can file jointly barring remarriage.