Roth Conversion from Inherited IRA
I inherited an IRA as a non-spousal beneficiary where the original owned died in 2019, having already taken her RMD.
I am eligible to take RMDs over my own life expectancy.
RMDs have been suspended for 2020, so I am not required to take anything out of the account.
However, I also retired at the end of 2019, and have COBRA insurance premiums and am having dental work done that would leave me with a large unusable amount of deductibility in excess of the standard deduction, unless I have something to deduct against.
In projecting my 2020 taxes, the amount of distributions I could take and still have zero Fed tax liability (due to itemizing deductions) is around $25,000. I have no wage income.
Is it correct that, in this scenario, I can take a $25,000 distribution from the Inherited IRA, owe no Fed tax on it (because of the deductions), and put it in my Roth?
Permalink Submitted by David Mertz on Wed, 2020-05-06 15:21
No. A non-spouse beneficiary is not permitted to do a Roth conversion from an inherited IRA. It still generally makes sense to take the distribution to the extent that it won’t increase tax liability, you just can’t put it in a Roth IRA as a Roth conversion. You could use the money to subsidize a regular Roth IRA contribution to the extent that you are eligible to contribute to a Roth IRA.
Permalink Submitted by Chuck 2009x on Wed, 2020-05-06 17:47
OK, I thought there was probably a reason why not, but I couldn’t turn up anything in a search. Thanks for the reply…
Permalink Submitted by Chuck 2009x on Wed, 2020-05-06 19:02
If conversion from the Inherited account is a no-go, what about from a regular Rollover IRA that was created (via Trustee to Trustee xfer) from my old work 401(k)? I think I originally nominated the Inherited account as the source of conversion funds because it is much larger. All of the current accounts are with the same brokerage.
Permalink Submitted by Alan - IRA critic on Wed, 2020-05-06 19:36
Yes, you could convert from the rollover IRA and determine how much can be converted without producing any taxable income.