This week's Slott Report Mailbag looks into inherited IRAs, beneficiaries, and backdoor Roth IRA strategies. As always, we recommend you work with a competent, educated financial advisor to keep your retirement nest egg safe and secure. You can find one in your area here.
My client just inherited an inherited IRA from her spouse, who originally inherited it from his father. I have two questions. How should she title the account now and does she have to take RMDs?
Thanks! - Jim
With regard to your first question, the titling on the inherited IRA would need to change. According to the IRS reporting instructions, the inherited IRA would be retitled “Client as beneficiary of Husband.” We recommend you add the wording successor beneficiary to the title in order to try and ensure that future RMDs are calculated correctly.
As for your second question, when your client inherits the IRA that her husband had inherited from his father, she is considered to be the successor beneficiary. She steps into her husband’s shoes since he was the original beneficiary. She would need to continue his RMD schedule by taking RMDs based on his life expectancy. Your client may not do a spousal rollover because the original IRA owner was not her spouse.
Are backdoor Roth conversions permitted for tax year 2017? We did one for the tax year 2015 and 2016 and heard it was being taken away.
With the “back -door” Roth IRA strategy, high-income clients can make non-deductible contributions to traditional IRAs and then convert those traditional IRAs to Roth IRAs (the pro-rata rule will apply).
By using this strategy in 2015 and 2016, you were able to add funds to a Roth IRA in those years even though your income was too high for you to make tax-year Roth IRA contributions. Will you be able to do so again in 2017? Well, as of this writing, despite some efforts to shut it down legislatively, the back-door Roth strategy remains available.
2017 promises to be a year to bring many tax changes. You can stay up-to-date on the status of the back-door Roth IRA strategy and all breaking events that affect your retirement account by checking in regularly with the Slott Report.