inherited ira’s
#1 If the IRA holder dies and has a minor (IE: 5 year old grandchild, non-spouse) as the beneficiary does a court document need to be filed because the beneficairy is a minor. I could not find the answer in Ed Slott’s book however I was told in the NOLO book it mentions this.
Obviously there is tremendous tax advantage of having a 5 year old inherit a CD based upon the IRS lidetime table.
I assume this would not effect college aid since an IRA is not considered liquid.
#2 If a non-spouse inherits an ira and follows the procedures and for example has a 3,000 minimum distribution based upon the IRS tables, could that person, assuming they had earned income, buya 3,000 roth IRA.
When a retired 75 year old takes an RMD, they are not allowed to roll it into a Roth. But the above example effectively accomplishes this.
Permalink Submitted by Alan Spross on Fri, 2008-01-11 01:24
The requirements of a minor beneficiary vary considerably from state to state, and in some states a guardian at litem may need to be court approved even if such person was the parent. RMDs must be taken every year even though they would start out very small in this case. They might be paid into an UTMA account or child’s trust.
Yes, if the beneficiary has the earned income, they can make regular Roth contributions, but of course cannot convert any of the inherited TIRA directly to a Roth. A child could mow lawns etc but if there is no W-2, documentation should be kept as to hours and the hourly rate for the chores should be reasonable. The IRS has not been asking too many questions regarding income documentation for minor’s Roth contributions, but sometimes it takes some work to find an IRA custodian to open one.
I don’t think retirement plan assets count when financial aid for education opportunities are considered.