Roth Conversion / Spousal Beneficiary
A person is 85 years old and current taking the RMD from two Traditional IRAs – one which is his own and the other which he inherited from his deceased spouse. He is considering converting one or both to a Roth IRA, as well as making additional contributions to my own since he has small amount of earned income.
1) Can he still convert one or both to a Roth IRA for tax year 2009, assuming he is under the MAGI limits for 2009 conversions? I believe from reading other posts that conversions are limited on inherited T-IRAs, but it is unclear to me if that applies only to non-spouse beneficiaries, or if a spousal beneficiary is treated differently in this regard.
2) Can he convert one or both to a Roth IRA for tax year 2010, after taking the 2010 RMD? Would he need to take the RMD from all of the T-IRAs before converting, or just from the one converted?
3) In either case, post-conversion, he would no longer be required to take RMDs on the Roth investments, correct?
4) Additionally, would the 5-year holding requirement still apply, or is that waived because he is over 70-1/2?
5) He may opt to transfer these to another trustee via a trustee-to-trustee transfer. I have seen some posts about limitations of once-per-year transfers or something to that effect. If he first transfers one of these IRAs to another broker/institution, does that impact his ability to exercise the conversion?
Many thanks!
Permalink Submitted by Alan Spross on Thu, 2010-02-25 05:04
1) Too late for a 2009 conversion unless he took a distribution in the last 4 days of December and has not rolled it over yet. That would enable him to fund a Roth conversion within 60 days, but that is an extreme long shot at this point.
2) This depends on whether the inherited IRA is still in inherited format or has been assumed. If owned, the entire RMD must be taken prior to converting, but if not he could take the RMD on the owned IRA and then convert it before taking the RMD on the inherited IRA. It is odd that the inherited IRA was never assumed or rolled over, and his RMD would probably (but not always) be less if he assumed ownership.
3) Right. No RMDs required on the owned Roth IRAs.
4) The 5 year holding would only be required for the earnings to be tax free, not for the removal of conversion dollars and the early withdrawal penalty.
5) No limitation applies to Roth conversions; these do not count as rollovers for purposes of the one rollover limit. If he transfer them before converting, then he must be sure there is a rollover remaining unless he plans to use a direct trustee transfer.