Surviving spouse IRA bene converting to Roth

Submitted by Robert Vashko on Mon, 2020-10-05 16:58

Surviving spouse inherits traditional IRA. Wants to convert to a Roth.

Since you generally cannot convert an inherited IRA, is the SS required to assume ownership first and then convert? Or could their surviving spouse status allow them to convert without assuming ownership first?

Granted, the SS would probably want to assume ownership at some point to eliminate any bene RMD concerns. But does the ordering matter, given their special surviving-spouse status – e.g., could they convert an inherited IRA to an inherited Roth and then assume ownership?



Submitted by Alan - IRA critic on Tue, 2020-10-06 23:17

  • SS could transfer or roll over a distribution from the inherited IRA directly to an owned Roth IRA. The taxes due would be based on the taxable amount of the distribution. For example, if the decedent’s IRA contained basis, assuming ownership would only dilute the basis in the SS’s IRA if they owned one. A conversion following election of ownership would then be taxed at a higher rate than necessary. Completing some of these transfers might run into IRA custodian resistance given the lack of clarity of IRS instructions on this issue. Note that the tax code is clear that a spousal inherited IRA or even a portion of an IRA is not treated as an inherited IRA with respect to rollover rules. But when there is nothing to be gained, it will run into less resistance to simply elect ownership first if the SS is the sole beneficiary.
  • SImilarly, the rollover of such a distribution to an inherited Roth also lacks clarity. PLR 2004-50057 authorizes a SS to roll over decedent’s IRA into an inherited IRA. No reason this would not similarly apply to an inherited Roth IRA.  And since an inherited IRA is not treated as inherited for rollover purposes, there is also no reason an inherited TIRA could not be rolled over to an inherited Roth IRA. In other words, the SS should have total portability in these situations, although lack of clarity increases the chance of custodian resistance, so it is best to use the simplest path possible when the end result is the same either way. However, there will be cases where the end result would be different using full allowed portability.

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