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inherited IRA

Roth Conversions and Stretch IRAs: Today's Slott Report Mailbag

Question: Could you please direct me to information that tells me how any conversions I make from my regular IRA to a Roth will be taxed. My belief was that the amount of any conversion will be taxed at whatever my tax bracket is for the year in which I make the conversion. Is that correct? Therefore, all other things being equal, it is preferable to make the conversion in years where my tax bracket is lower. Thanks for your help. Joann Answer: Joann, You are 100% correct. Any conversion from a traditional to a Roth IRA will be taxed at your tax bracket for the year in which you make the conversion. (One is not allowed to make a “prior year conversion.”) As for your second comment – also yes.

Caution! No Rollover for Nonspouse Beneficiaries

Did you inherit an IRA from someone who is NOT your spouse? This is not uncommon. Maybe you inherited from a sibling or a parent or a friend. If this is your situation, you will want to proceed with caution. For nonspouse beneficiaries a wrong move can result in disastrous consequences. So, take your time and do it right. Step one is to carefully explore your options. What are a nonspouse beneficiary’s options when it comes to the inherited IRA? Under the tax code, nonspouse beneficiaries can take advantage of the “stretch” IRA. This means you can set up a properly titled inherited IRA and then take required minimum distributions (RMD)s based on your life expectancy.

Don’t Fear the 5-Year Rule

Prior to 2002, a default option for paying out required minimum distributions from an inherited IRA to a beneficiary was the 5-year rule. If the IRA owner died before their required beginning date and an election was not made in a timely manner, the account had to be closed by December 31 of the 5th year following the year of death. In 2002, new regulations issued by the IRS changed the default payout to the life expectancy of the designated beneficiary. The 5-year requirement for most beneficiaries was eliminated.

How Much Can a Stretch IRA Be Worth?

One of the greatest benefits of an IRA is its ability to provide tax-favored wealth for heirs. An IRA left to a beneficiary can be "stretched" to provide pre-tax compound investment returns for the rest of the beneficiary's life -- or even longer. And these can be distributed totally tax free if it is a Roth IRA.

This Week's Q&A Mailbag: SEP contributions, RMDs, and Inherited IRAs

This week's Q&A Mailbag answers reader questions on SEP contributions, RMDs, and Inherited IRAs.

Are You Taking an RMD for the First Time in 2018?

This week's Slott Report Mailbag examines inherited IRAs and retirees taking RMDs for the first time.

The Rules and Strategies When You Inherit an IRA From Your Spouse: This Week’s Q&A

This week's Slott Report Mailbag looks into RMDs and spousal IRA beneficiaries.

RMDs to a Trust Beneficiary of an IRA

In the past couple of weeks, I have heard the wrong answer to the question of where required minimum distributions (RMDs) must go to a trust beneficiary from both an advisor and an IRA custodian.

Inherited IRAs – When do RMDs Begin?

We are frequently asked when required minimum distributions (RMDs) begin when an individual inherits an IRA. As with most things related to IRAs, the answer is, it depends.

Are You Over 70.5 Years Old and Still Working? Understand Your Options With RMDs: This Week’s Q&A

This week's Slott Report Mailbag examines RMDs when you are still working past 70.5 years old and inheriting multiple IRAs.

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