INHERITED IRA FROM SPOUSE
INHERITED IRA FROM SPOUSE
I have a situation where the wife died at the age of 62 and left her traditional IRA to her husband. The IRA was primarily funded with nondeductible (after tax) contributions.
Question:
1. If the IRA is kept in the spouses name for the benefit of the husband, can the IRA be rolled over (converted) to a Roth IRA. If yes, does the husband have to consider his IRA, Simple IRA and his IRA basis to determine the amount of the basis used in the computation of the taxable amount?
2. If the husband transfers the IRA to his name are the taxable consequences any different?
Permalink Submitted by Joseph Arsenault on Thu, 2009-12-10 20:49
An inherited IRA cannot be converted to a Roth IRA. The husband will have to roll the IRA into his own name before considering a Roth conversion. All of his IRAs will be considered for the pro-rata rules of performing the conversion, so you are correct there.
If the husband is working for an employer with a 401k as well, he could transfer his deductible contributions to the employer plan and leave only the non-deductible contributions in the IRAs. He could then convert the amounts tax free.
Also consider the 2-year rule on the Simple if you have not already for any type of rollover out of the plan.
If the Husband transfers the IRA to his name there are no taxable differences income wise, but there are different RMD considerations to take into account as well as 10% penalty considerations if he is under 59 1/2.
-j