By Sarah Brenner, JD
Director of Retirement Education
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I’m looking forward to the July workshop in Boston but hoping you can help with this question now.
What happens if an account holder who is over age 59 ½ does a Roth conversion from his traditional IRA but dies before the five-year holding period?
If an IRA owner converts to a Roth IRA and then dies within five years, any converted funds will be immediately accessible to the beneficiary tax and penalty-free.
However, if this was the IRA owner’s first Roth IRA then the beneficiary would need to wait out the IRA owner’s five year holding period before any earnings in the Roth IRA would be available tax-free. The earnings would not be subject to the 10% early distribution penalty because that penalty never applies to inherited IRAs.
Looking forward to seeing you at our upcoming workshop in Boston in July!
My wife and I each have inherited IRAs as well as our own, and I’ll be 73 next year. She’s a few years behind.
The RMD rules on our inherited IRAs are complicated but I’ve paid attention and think I have a good handle on ours.
But… there are too many accounts! – my IRA, her IRA, my Roth, her Roth, my Inherited IRA, her Inherited IRA, her inherited Roth. All have different rules and must be kept separate, but I’d like to use RMDs to eliminate the small accounts and simplify things.
My question is: When I calculate the RMD on my IRA, do I include the value of my inherited IRA in the calculation? Does taking an RMD from an inherited IRA count toward my RMD for a given year? One inherited IRA is fairly small, and I’d like to take it all to help satisfy my RMD next year and eliminate that account.
The rules on aggregating RMDs can be tricky. You can aggregate RMDs for your own IRAs and take the total from one account. However, you cannot aggregate RMDs from your own IRAs with any from inherited IRAs. Unfortunately, you will not be able to take the RMD for your own IRA from the small inherited account.
New Episodes of the Great Retirement Debate Podcast with Ed Slott and Jeffrey Levine, Airing Every Thursday!
In this episode of the Great Retirement Debate, Ed and Jeffrey discuss whether you should convert or not convert your IRA to a Roth IRA.
You can stream The Great Retirement Debate at greatretirementdebate.com or on all major streaming platforms.