Roth Conversions and Inherited IRAs: Today’s Slott Report Mailbag

Thursday, February 08, 2024

By Andy Ives, CFP®, AIF®
IRA Analyst
Follow Us on X: @theslottreport

QUESTION:

If an individual has both an IRA and a 401(k) and wants to convert the IRA to a Roth IRA, does he have to take both the IRA and the 401(k) RMD (required minimum distribution) before doing a Roth conversion?

Thanks for your kind attention.

ANSWER:

For things like Roth conversions, the pro-rata rule and RMD aggregation rules, IRAs and 401(k) plans are completely independent of each other. Yes, you do need to take your IRA RMD prior to doing a Roth conversion of any portion of the remaining IRA dollars. However, your 401(k) has no impact on this transaction. If you wish, you can wait and take your 401(k) RMD later in the year, after the Roth IRA conversion.

QUESTION:

Hello,

I hope you can help out with my question. What is the proper way to rename an Inherited IRA or Roth IRA, and is there a timeframe in which this must be done?  And in the case that the original beneficiary passes away before the account is emptied, under the 10-year rule, does the Successor Beneficiary have to once again rename the IRA or Roth IRA.?  If so, what is the proper way and timeframe to do that?

I look forward to your reply.

Regards,

Janice

ANSWER:

Janice,

When it comes to titling an inherited IRA, the deceased IRA owner’s name must remain on the inherited IRA account title and the account title must indicate that it is an inherited IRA by using the word “beneficiary” or “beneficiary IRA” or “inherited IRA.” There is no universal format – it just must be clear that it is an inherited IRA. For example: “John Smith IRA (deceased 11/27/22) F/B/O John Smith, Jr., Beneficiary.”

If the first beneficiary – John Smith, Jr. – were to pass away before the end of the 10-year rule, the successor beneficiary would have to retitle the account in a similar fashion, such as: “John Smith, Jr. Beneficiary IRA (deceased 1/10/24) F/B/O Sally Smith, Successor Beneficiary.” There is no official deadline for retitling an account as an inherited IRA. However, for many beneficiaries, December 31 of the year after the year of death may be the deadline for taking the first RMD. To process this correctly, setting up a properly titled inherited IRA by this date is necessary. Also, if there are multiple beneficiaries, having retitled inherited IRAs established by the December 31 date ensures that the separate accounting requirements are met. This allows each beneficiary to use the longest possible payout period under the RMD rules.

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