What Life Expectancy Table Should an IRA Inheritor Use to Calculate Required Distributions Moving Forward?

Thursday, September 18, 2014

By Joe Cicchinelli & Beverly DeVeny, IRA Technical Experts
Follow Me on Twitter: @BevIRAEdSlott
Follow Me on Twitter: @JoeCiccEdSlott

 

This week’s Slott Report Mailbag looks at utilizing the pro-rata rule to calculate tax consequences for your Roth IRA conversion plus what life expectancy table an IRA inheritor should use to calculate their RMDs (required minimum distributions) moving forward. 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.

1.

Ed,

I don’t know if you can help me, but here’s the situation.

I make about $250,000 annually with an active 401(k) and an IRA Rollover account of $20,000.  Can I make a new non-deductible contribution to my IRA and then convert it to a Roth and pay no taxes?  Or must I consider my current deductible IRA when considering the tax consequences?

Thanks for your help.

Neil

Answer:
You must use the pro-rata tax rule when figuring the taxation of your Roth IRA conversion. The rule says that you must use all of your non-Roth IRA balances to figure the taxes you’ll owe on a conversion. You can find the formula on IRS Form 8606 which you must file any time you put after-tax funds in an IRA and then any time you take a distribution from any IRA.

2.

I inherited an IRA from my 73-year-old wife who was taking RMDs from her IRA. The inherited IRA was accidently set up as a BDA. Do I have to use the single life table for continued RMDs?

Answer:
As a spouse beneficiary, you can move the funds to your own IRA at any time. After the funds are in your own IRA, you will use the Uniform Lifetime Table to calculate your RMD, which will yield a smaller RMD than would be calculated from an inherited (beneficiary) IRA using the Single Life Table.

 

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