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Converting Inherited Assets to a Roth IRA

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Posted July 29, 2009

You are a non-spouse beneficiary and you've inherited an IRA or employer plan assets. Can you convert those assets to a Roth IRA? The answer is yes and no.

Inherited employer plan assets (401(k), etc.) can be directly transferred to a properly titled, inherited Roth IRA. Income tax will be due on the amount converted and must be paid by the beneficiary doing the conversion. Since the funds are in an inherited Roth IRA, required distributions to the beneficiary begin in the year after the plan participant's death. For 2009, the employer plan is not required to offer this option. In 2010 it will become mandatory for the plan to allow a transfer to an inherited IRA or Roth IRA.

Inherited IRAs, on the other hand, cannot be converted to inherited Roth IRAs. Only the IRA owner (the person who made the IRA contributions) can do the conversion.

A spouse can always move the funds inherited from the deceased spouse to his or her own IRA and then do a conversion to a Roth IRA.

Ed Slott and Company has been called "The Best" sources for IRA advice by The Wall Street Journal, and "America's IRA Experts" by Mutual Funds Magazine. Ed is a widely recognized professional speaker and author. The company’s website is IRAHelp.com.


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