ROTH CONVERSIONS AND INHERITED IRAS: TODAY’S SLOTT REPORT MAILBAG

By Sarah Brenner, JD
Director of Retirement Education
Follow Us on X: 
@theslottreport

Question:

I have a traditional IRA with a portion being nondeductible contributions. The last nondeductible contribution I made was in 2009. and I have my Form 8606 showing the basis.  I want to convert a portion of my traditional IRA to a Roth IRA. Can I convert all of the nondeductible amount plus some of the before-tax contributions to a Roth IRA?  I have never taken any distributions from my traditional IRA. I’m 52 years old.

Thanks,

Jeff

Answer:

Hi Jeff,

Good job with tracking your basis. Many people do not file Form 8606 and some even end up paying taxes again on IRA funds that were already taxed.

Unfortunately, you cannot choose to convert just the after-tax portion of your IRA funds. Instead, a pro rata formula applies, and a portion of any IRA distribution you take (including a conversion) would include a percentage of those after-tax dollars. The remaining portion would be taxable. You can see exactly how this formula works by taking a look at Form 8606.

Question:

My estate planning lawyer tells me that my 6 year old granddaughter is not required to take her inherited IRA RMDs until she comes of age. I disagree, but I am unable to find an answer.  Thanks for your help.

Regards,

Harold

Answer:

Hi Harold,

The SECURE Act changed the rules for nonspouse beneficiaries, and there is a lot of confusion as to how the new rules work for minors. Minor children of the account owner can still use the stretch and take annual required minimum distributions over their life expectancy. This is only allowed until they reach age 21, and then the 10-year rule will apply. Grandchildren do not get the stretch at all. Grandchildren would be subject to the 10-year rule immediately upon the death of the IRA owner.

https://www.irahelp.com/slottreport/roth-conversions-and-inherited-iras-todays-slott-report-mailbag-0

Ready To Take

THE NEXT STEP?

For more information about any of our products and services, schedule a meeting today.

Or give us a call at (610) 389-4077