Inherited IRA

Submitted by Lee Applebaum on Mon, 2013-09-16 15:16

Can you take a non-spousal inherited IRA and convert it to a Roth IRA? Is there even such thing as an inherited non-spousal Roth?



Submitted by tomd37 on Mon, 2013-09-16 15:21

No, you cannot convert a non-spousal inherited IRA to a Roth IRA.  Also, as you probably know, the inherited IRA must be kept separate from any other IRAs held and the RMD calculation is done separately from other RMD calculations.   Tom D.

Submitted by Lee Applebaum on Mon, 2013-09-16 16:38

Thanks for the info.  I do know about the special titling rules, but if I open a separate Roth, what does the IRS care if I pay the tax upfront on a conversion?  Other than the opportunity cost loss to them of additional tax on gain, what is the logic to not allowing it?  Also, is there a code section I can reference for my purposes?

Submitted by Alan - IRA critic on Tue, 2013-09-17 04:51

  • It may be a throwback and quite convoluted, but the rule that an inherited non spouse IRA cannot be converted to an inherited Roth IRA is based on the the tax code provision that an inherited IRA cannot be rolled over. Roth conversions are allowed for “qualified rollover contributions” which in turn are defined and referred to Sec 408(d)(3) where the non rollover limitation for (non spouse) inherited IRAs is found. Further confusion is caused by the fact that Pub 590 no longer contains the simple statement that an inherited non spouse IRA cannot be converted.
  • So what happens if you take the distribution and roll it over to an inherited Roth IRA? You will get a 1099R reporting the distribution and a matching 5498 showing the contribution to a Roth IRA as a rollover contribution. But since the original IRA is clearly identified as inherited, unless the IRS thinks it was inherited from your spouse, they would notify you that a failed conversion has occurred and you would have to distribute the converted amount from the Roth IRA.
  • In the longer scheme of things, I think that there is a good chance that in the near future the code will be changed to allow this type of conversion. Note that non spousal inherited qualified plans (401k, 403b, etc) can now be rolled over to an inherited Roth IRA and that is inconsistent with the denial of this activity from an inherited IRA. Beside the inconsistency, the Treasury needs the tax revenue, and portability options have exploded in recent years. Hard to predict when this will happen however.

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