Inherited IRA RMD for 2023 Roth IRA contribution
My client has an Inherited IRA with a RMD of $2800 for 2024. She would like to take a distribution of $7500 immediately from her Inherited IRA and use the $7500 proceeds to fund her Roth IRA contribution. My client has earned income of more than $7500. Would this be allowed and what are the logistics to complete.
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Permalink Submitted by PaulC on Wed, 2024-03-13 15:49
As long as the client has the necessary earned income to qualify for a Roth contribution, which you state is the case, and their AGI for 2023 doesn’t exceed the limit for eligibility to contribute to a Roth IRA, this transaction is allowed. Once the client takes the distribution from the inherited IRA, the funds are available to be used for any purpose. This doesn’t qualify as a rollover, since distributions from an inherited IRA can’t be rolled over, and the distribution from the inherited IRA will count as taxable income in the year taken.
Since you are citing a contribution of $7,500 I was assuming this is planned as a 2023 Roth contribution. If they meet, or will meet, the Roth IRA eligibility requirements for 2024, they could potentially contribute another $8,000 for 2024.
As far as logistics, the client should request a regular distribution from the inherited IRA and then turn around and submit that desired amount as a Roth contribution. Depending upon the adeptness of the IRA custodian at handling transactions, I would recommend keeping the two transactions separate, even if both IRAs are held at the same custodian, just to prevent mistakes in coding the distribution and contribution. By that, I mean putting the proceeds from the distribution in a checking account, or other non-qualified account, first and then making the payment for the contribution, as opposed to the custodian making a transfer between the accounts. There’s nothing wrong with transfer of the funds directly between the IRAs, as long as everything is coded correctly.
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