Inherited IRA & Backdoor Roth
Hi,
I have a new client that became a widow this year. She inherited her husband’s 401(K). His 401(k) has been rolled into a beneficiary IRA at my firm rather than an IRA in her name. We did this for two reasons. #1 her husband was 61 at his death and she is only 58 so it allows her to access funds in that account without penalty before 59.5 (if necessary) and #2 it is my understanding that this beneficiary IRA will not be used in pro-rata calculations for the backdoor Roth strategy. Is my understanding on #2 correct? Her beneficiary IRA is the only IRA she has. She doesn’t have any balances in a SEP, SIMPLE or Traditional IRA.
Permalink Submitted by Alan - IRA critic on Tue, 2023-12-19 00:36
Yes, you are correct that this inherited IRA is irrelevant to any back door Roth conversions she may do. Note that with the beneficiary IRA, she does not have to take any beneficiary RMDs until her husband would have reached age 75. Eventually, when the back door Roth strategy is no longer needed, she can assume ownership of the inherited IRA. Also, with this being the last year she can file jointly without getting remarried, she might want to consider an incremental Roth conversion from the inherited IRA since their marginal rate this year is probably lower than her single rate next year.