Racing the clock for converstion to ROTH
Mother in law is in the last hours of her life. My wife is the sole beneficiary of her mother’s traditional IRA. We have pulled out most of the money from mother’s-in-law’s IRA so the tax will be assessed at her(mother-inlaw) much lower rate. However, there is still $15k in the IRA that we would like to have her convert to a ROTH and then we would be able to draw on that for our life expectancy. Problem is, the company where her IRA is invested requires we MAIL in the IRA conversion form and says it will take a few days to go through the system after receiving. Don’t think mother in law will last that long. Would the IRS allow the date and time of mailing the form to be the determining factor on whether it was converted to a ROTH or not?
If not, out best bet would be to just cash it in, correct?
Permalink Submitted by Alan Spross on Wed, 2010-03-24 04:14
Most firms will not make changes based on post marks, but rather receipt of the request by their firm. You might make the attempt to complete the conversion, knowing that if the clock does not run long enough, the request will just be void. Or perhaps order a full distribution and try to open a new Roth conversion account with a local efficient IRA custodian. An indirect conversion might be faster if the current custodian can issue a check with any efficiency and perhaps wire the proceeds.
A conversion is one of those independent events that does not trigger executor authority to complete, although the executor does have the authority to recharacterize the conversion back to the TIRA or to complete rollovers if there is evidence that this is what the decedent intended. A mess is created if the distribution is taken and the estate has a different beneficiary than the distributing IRA or the new IRA, if one has been set up. So while in certain situations, a non spouse beneficiary who is sole beneficiary and executor can complete a rollover and this has been approved in various IRS letter rulings, I have not read any that extended this rollover to a Roth conversion, even though a Roth conversion is itself simply a distribution and rollover, just to a different type of IRA than the original.
So if you try but the clock does not cooperate, for 15k I would not be inclined to try to get a custodian to open a Roth IRA or request a letter ruling. They are too expensive for only 15k in IRA assets.
Another possibility for your wife is that even though she cannot convert an inherited TIRA to an inherited Roth IRA at this time, non spouse beneficiaries CAN convert an inherited qualified plan to an inherited Roth. There is always a chance that this inconsistency will be resolved by allowing the conversion to take place at some future point. So if your wife begins to take life expectancy RMDs, there is always a chance that she would be allowed to convert at some point. And finally, the RMDs that she must take could fund some expenses that would allow her to make her own regular contributions to a Roth of her own OR to pay the taxes if she has an IRA to convert to a Roth IRA.
Then, there is always your other suggestion to simply distribute the entire account.