Beneficiary IRAs/Roth IRA
My wife age 73 died 03/2010 leaving two traditonal IRAs to beneficiary daughter age 46. You recommended the bene not close the IRAs rather convert them to beneficiary IRAs. Can they be combined into one?
Must the MRDs be made this year every year at which persons age schedule
Can the newly established IRAs be Roth or only beneficiary of the original type.
Since the amounts are only $30K and $5k would some other approach/ accounts be advisable?
Would it be better just to close the IRAs and open a new Roth IRA to which money can be deposited
Any other information/written strategies will be appreciated.
Ed, Thanks for being on KQED
Bob Evans
Permalink Submitted by Alan Spross on Tue, 2010-12-28 22:03
Sorry to hear of your loss.
Daughter should properly re title the IRAs in her name as beneficiary and name her own successor beneficiary. Since both IRAs were inherited from the same person, they can be combined but this must be done by direct transfer, since a non spouse beneficiary cannot do a rollover.
Daughter needs to take any 2010 RMD due for your wife that she did not take. Daughter’s own RMDs start in 2011 and the first one needs to come out no later than the end of 2011. She should use Table I to get the divisor for the age she will reach in 2011, and then reduce that divisor by 1.0 each year after 2011.
These inherited traditional IRAs cannot be converted to inherited Roth IRAs at this time. Perhaps the law will be changed in the future, but for now she must take her annual RMDs.
She can contribute to a Roth IRA if she has earned income and her income is not too high to qualify. If she cannot afford to make these regular Roth contributions, she can use the RMDs from the inherited IRA to subsidize the Roth contribution. This is not a rollover or conversion, just the use of the RMD money to subsidize her Roth contribution made from her earned income. And if she has any traditional IRAs that she owns (not inherited), she could convert all or part of them and use the RMD or additional distributions from the inherited IRA to pay the tax bill for the conversions. These are ways that she can use the inherited IRA to indirectly increase her Roth accounts even though she cannot convert the inherited IRA itself.
If your wife ever made non deductible contributions to her IRA, they should be shown on Form 8606, and her daughter would inherit any unrecovered basis to apply to the inherited IRA. Any such basis would make her RMDs or other distributions less than 100% taxable.