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Roth conversion

Chris Farrell Jan 11, 2010

Question: I heard your segment about converting to a Roth IRA recently and was wondering if it was possible to convert a Beneficiary IRA to a Roth IRA? Thanks for the great show! John, Chicago, IL

Answer: You would think this would be an easy question to answer, right? It isn’t. Like so many of the rules surrounding IRAs the answer is a mystery wrapped in an enigma requiring the help of a CPA to untangle. It’s a disgrace.

That said, here is the basic outline. If you’re the spouse and it’s an inherited IRA you can convert it to a Roth. (Whether you should is a separate question). That’s pretty straight-forward. But if the IRA beneficiary isn’t the spouse it can’t be converted into a Roth. However, new guidelines allow a non-spouse beneficiary of an inherited retirement savings plan like a 401(k) (but not an IRA) to convert it into a Roth. But the employers plan must permit the maneuver and many don’t. I am not making this up. Really. Now you know why my bottom line is consult with a pro unless the beneficiary is the spouse.

Investopedia has a good and more detailed description of the rules here.

One other thing: I’ve read a number of clever ways to get around the restriction surrounding non-spousal inherited IRAs and Roth conversions. My own sense is that they aren’t worth the cost and effort. Keep it simple is my motto (well, one of my mottos).

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