Conversion of Beneficiary IRA to ROTH
Individual was the beneficiary of his wife’s IRA. she was more than 10 years younger than him. Therefore, he rolled it into a beneficary IRA, using his wife’s age to trigger the eventual RMD’s. Can he now convert this to a Beneficiary ROTH IRA?
Permalink Submitted by Alan Spross on Tue, 2010-03-09 21:38
He could in theory, but there is absolutely no benefit for doing so after age 59.5. If he wants to convert, he should first assume this IRA as his own and then convert it to an OWNED Roth IRA. With an owned Roth IRA, he would not have any RMDs required other than for the year of the conversion. After age 59.5 there is no reason to maintain the Roth in inherited form since there are no longer any early withdrawal penalties.
If he maintained an inherited Roth IRA, he would have to take RMDs using his own recalculated life expectancy, and there is no need to have RMDs if he converts to his OWN Roth IRA. If this is his first ROth IRA, earnings are still taxable until he meets the 5 year holding period, but they come out LAST.
Permalink Submitted by Donald Reutemann on Thu, 2010-03-25 14:13
This was very helpful. When the client “assumes” the BDA IRA as his own he will need to take out the RMD before converting to a ROTH. Does he use the 12/31/09 value?
Permalink Submitted by Alan Spross on Thu, 2010-03-25 19:07
Yes, IF he must take an RMD.
What age would wife have attained by end of 2010 had she lived?
What age will survivor attain in 2010?
If the answer is 70 show either 70 or 70.5 if applicable
Permalink Submitted by Donald Reutemann on Thu, 2010-03-25 19:13
The surviving spouse is 74. The deceased spouse would not have been 70.5 until 2011. If he kept it in the BDA there would be no RMD this year, but because he is assuming it as his own in 2010 then the RMD is required for 2010. Correct? The end result desired is to have this as a ROTH and he is willing to subject himself to an RMD on it now as he is worried about future tax rates.
Permalink Submitted by Alan Spross on Thu, 2010-03-25 20:45
Survivor can assume ownership and convert this IRA to a Roth without taking an RMD for 2010:
1) There is no beneficiary RMD due because the decedent would not have reached 70.5 in 2010, therefore 2010 is not an RMD distribution year as spousal beneficiary.
2) In a year when ownership is assumed, the IRA account is deemed to have been owned all year. However, as an owned IRA account, there is no account balance as of 12/31/2009 for this IRA, only other IRAs that the surviving spouse may own. However, IF the surviving spouse does own other TIRA accounts subject to RMDs due to his age, he still must take those RMDs before converting the newly assumed IRA because of the IRA aggregation rules. Those rules say he can satisfy his actual RMD for any of his IRAs from other IRAs in any combination. This means that the conversion distribution would be deemed an RMD for the other IRAs unless the other IRA RMDs had already been satisfied.
BUT, if this is the only IRA he owns, he can convert it without taking an RMD for 2010 because he had no 12/31/09 TIRA balance from which to generate an RMD. Certain adjustment rules do not apply here because this account will not be assumed in a different year than a distribution was made that was rolled over to this IRA. And by doing this conversion, there also will be no TIRA balance as of 12/31/2010 from which to produce a 2011 RMD.