Roth Conversion of Inherited 401k Assets
Relevant Background Information
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A client inherited her aunt’s pre-tax 401k. Her intention is to convert the inherited assets to an inherited Roth IRA. I know this cannot be done when inheriting a normal IRA.
However I heard somewhere that if inheriting a qualified plan and the beneficiary rolls the assets directly to an inherited Roth IRA and pays the taxes on the conversion, this is allowable.
Specific Questions
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1. Is this in fact true?
2. If so, I assume RMDs from the inherited Roth IRA would still be required, correct?
3. Would all distributions be tax and penalty free since the funds are coming from an inherited Roth IRA and taxes were paid at the time of conversion?
Thanks!
Permalink Submitted by Alan - IRA critic on Wed, 2017-09-27 21:52
Yes, this is true. RMD amount from the inherited Roth IRA will be the same as from an inherited TIRA and will be tax free. Beneficiary will have to report inherited Roth distributions for the first 5 years on Form 8606 but after that only on line 15a of Form 1040.
Permalink Submitted by Mike Triana on Thu, 2017-09-28 18:27
Thanks!!! The distributions will be penalty free as well since they are coming from an inherited IRA and reported as code 4-Death on the 1099-R, correct?
Permalink Submitted by Mike Triana on Thu, 2017-09-28 19:00
Also…..why are 8606 filings required for 5 years? Thanks.