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).
We’re here to help you navigate this changed world and economy.
Our mission at Marketplace is to raise the economic intelligence of the country. It’s a tough task, but it’s never been more important.
In the past year, we’ve seen record unemployment, stimulus bills, and reddit users influencing the stock market. Marketplace helps you understand it all, will fact-based, approachable, and unbiased reporting.
Generous support from listeners and readers is what powers our nonprofit news—and your donation today will help provide this essential service. For just $5/month, you can sustain independent journalism that keeps you and thousands of others informed.