Advanced Underwriting Consultants

Question of the Day – August 24

Ask the Experts!

The professionals at Advanced Underwriting Consultants (AUC) answer the tax and technical questions posed by producers.  Here’s the question of the day.

Question: A person recently passed away leaving a traditional IRA account to her daughter, who is my client.  Can the daughter convert the inherited IRA account to an inherited Roth IRA?

Answer: No.

An inherited traditional IRA account paid to a nonspouse beneficiary may be stretched based on the beneficiary’s life expectancy.  It may not, however, be converted to an inherited Roth IRA based on current rules.

On the other hand, an inherited employer-sponsored qualified plan account—such as a 401K account—can be converted to an inherited Roth IRA account.  Minimum distributions from the converted inherited Roth IRA would need to be taken. Any distributions would be qualified (and completely federal income tax-free) so long as the decedent’s first Roth IRA contribution took place in the fifth year prior to the distribution or earlier.

Have a question for the professionals at AUC?  Feel welcome to submit it by email.  We may post your question and the answer as the question of the day.