Salvaging the lifespan distribtuion

Submitted by Steven Jones on Tue, 2023-11-28 19:30

I inherited a 401k in 2019.

I did not affirmatively elect the lifespan distribution method, and I’ve just been taking out the RMDs of the person I inherited it from.

I have the following questions:

Can I convert the 401(k) to a roth IRA?

Will this satisfy the 5 year rule?

Is the date I need to have the account empty december 31st 2024?

If I converted the account to a roth IRA, how should it be titled, and would that account then be subject to a five year distribution rule?

If I can’t salvage the lifespan distribution method, is the roth conversion off the table?

Permalink Submitted by Alan - IRA critic on Tue, 2023-11-28 20:05

Apparently, the non spouse decedent passed prior to RMD age, and the plan has informed you that the 5 year rule applies. Perhaps the plan did not tell you that you could have elected life expectancy RMDs by a certain deadline, most likely 12/31/2020 or 12/31/2021. When subject to the 5 year rule, there are no annual RMDs, but you must drain the account by no later than 12/31/2025 (because 2020 is not counted due to the CARES Act RMD waiver for 2020).
A non spouse beneficiary is allowed to convert an inherited 401k to an inherited Roth IRA through a direct rollover to the inherited Roth IRA. However, the 5 year rule will carry over to the inherited Roth IRA, which you will have to drain in 2025. Until the end of 2024 you should be able to have the direct rollover done with no RMD, but that will accelerate the taxes into the direct rollover year, meaning that the taxes will be due for 2023, 2024, or 2025 at the latest.