403b Inherited account partial rollover to spouse IRA then ROTH conversion

Submitted by Karin Botelho on Tue, 2023-04-18 15:12

I have a client who inherited her late spouse 403b account. He passed 5 years ago in 2018 before his RBD at the age 65 and she was age 66. In the past two years she did a rollover from the inherited 403b to her own non inherited IRA account. From there she did a ROTH conversion to her own ROTH IRA account. She would like to continue rolling from the inherited 403b to her own IRA and then complete a ROTH IRA conversion to her own account until the inherited 403b account is depleted.

Are all of these transactions allowed? Does the 5 year rule apply in this situation and that the account would have to be depleted at the end of the 5th year? If not allowed what are the options for her to rectify?



Submitted by Alan - IRA critic on Tue, 2023-04-18 19:27

  • These transactions are allowed so far, but if the 403b is subject to the 5 year rule rather than LE, the remaining balance will have to be distributed in 2024, the extra year allowed due to the CARES Act not including 2020 as a countable year for 5 year rule purposes. Conversely, if the plan provisions use LE, she would not have been subject to RMDs until the year he would have reached age 73 (2026).
  • If the 5 year rule applies, 2023 is the last year that these rollovers can be done because in 2024 none of the remaining balance could be rolled over because it would all be considered RMD. Therefore, to eliminate the chance of losing the stretch to either a mandatory 5 year rule or failing to make an election of LE distributions if the plan offers the beneficiary to make an election, the safe thing to do is a full direct rollover to her owned IRA before the end of this year.

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