Inherited Traditional IRA question
I plan to leave a Traditional IRA to a grandchild. Can that grandchild convert his inherited IRA to a Roth IRA at some point (hopefully when she is in a lower tax bracket)? Or is she locked into a Traditional IRA because it is an inherited IRA?
Permalink Submitted by Alan Spross on Tue, 2008-03-25 22:49
A non spouse inherited traditional IRA cannot be converted to a Roth.
Ref: Pub 590, top of p 30.
Perhaps later on if you have your own Roth, you could leave part of it to the grandchild instead of a TIRA. Either way, she will have to take RMDs, but of course the Roth RMDs will be tax free.
When there is several potential non spouse beneficiaries, it can take some thought regarding which ones get TIRAs of x value vrs Roth IRAs of y value according to their tax brackets.
Permalink Submitted by Robert Healey on Wed, 2008-03-26 00:24
Thank you. I suspected that was the case, but did not know where to look. Back to the drawing board!
Permalink Submitted by Alan Spross on Wed, 2008-03-26 05:53
A young TIRA beneficiary, as long as they some earned income, can take their RMD from an inherited TIRA and use it to subsidize a regular Roth contribution in addition to 401k contributions at least up to the employer matching limit. While reasonably young, they are then creating a Roth asset in a comparatively low marginal tax bracket, and their Roth will have decades to grow.
Of course, this takes discipline and there are plenty of other more material desires a young person has. Of course, that problem exists whether they inherit a Roth IRA or a TIRA.