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).
Stories You Might Like
There’s a lot happening in the world. Through it all, Marketplace is here for you.
You rely on Marketplace to break down the world’s events and tell you how it affects you in a fact-based, approachable way. We rely on your financial support to keep making that possible.
Your donation today powers the independent journalism that you rely on. For just $5/month, you can help sustain Marketplace so we can keep reporting on the things that matter to you.
