Our client died with a SEP IRA and a profit sharing plan/401k at work – her son is the beneficiary of all the retirement accounts. Is it possible to open one Inherited IRA for the son for both the SEP and the qualified plan?
As an owner a conversion is beneficial if it can be done at a marginal rate that is lower, and in some cases equal to what the estimated rate in retirement will be. At 30, the rate in retirement is mere speculation unless perhaps son is already in a highly paid professsion. As a beneficiary however, the benefit of a conversion (actually, it is called a qualified rollover distribution) is somewhat less due to the RMDs, although under the Roth IRA ordering rules there would be no taxes or penalty due on the inherited Roth RMD, whereas inherited IRA RMDs would be taxable. Son should also determine if there is any after tax money in the inherited 401k which would affect the rollover decision.
Permalink Submitted by Alan - IRA critic on Thu, 2019-04-18 16:43
Yes, as long as the son is using life expectancy RMDs on both accounts. Remember also that the son would be able to convert the inherited 401k to an inherited Roth if he wanted to, but not the inherited SEP, and that would requires separated inherited accounts with separate beneficiary RMDs.
Permalink Submitted by Talia Pierluissi on Thu, 2019-04-18 17:00
Thanks Alan! Is it beneficial to convert to an inherited Roth, since the son still has to take RMDs? The son is about 30. I guess it could make sense if he’s in a lower tax bracket and wants to stretch it out over his lifetime?