Pro-Rata Rule with Inherited IRA’s
How is the Pro-Rata Rule applied for inherited IRA’s with after-tax funds, both spousal and non? Are other existing IRA’s (non-inherited) combined with the inherited to determine taxable amount? And can one roll inherited IRA funds into a company plan, thus possibly removing the taxable funds and avoiding the Pro-Rata Rule for future distributions?
Permalink Submitted by Alan - IRA critic on Thu, 2022-03-31 18:14
Inherited IRAs cannot be rolled into an employer plan, but a spousal inherited IRA can be assumed by the surviving spouse and then rolled into an accepting employer plan, except for any IRA basis. If an inherited iRA has basis, it is tracked on a separate Form 8606 for each inherited IRA from a different decedent. Such 8606 basis cannot be combined with owned IRA basis except when a surviving spouse assumes ownership of the inherited IRA. Some tax programs cannot handle multiple Forms 8606 for the same taxpayer.