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Financial Planning / Tax Strategies
|Subject: Re: IRA conversion / inherited IRA||Date: 3/1/2013 3:57 AM|
|Author: TMFPMarti||Number: 117908 of 121219|
(An inherited ROTH IRA is still tax free, isn't it?
Distributions are taxed the same way they would have been to the decedent. (See more below.)
And doesn't require minimum distributions?)
Except for spouses, inherited Roths are subject to RMD's.
Does the 5 year holding period apply to people older than 59 1/2?
If my uncle starts converting his traditional IRA to a ROTH but dies before 5 years -- will the monies he has converted to a ROTH be converted back to a traditional IRA? and if it is, what becomes of the extra taxes paid due to the earlier conversions -- are they just lost?
The inherited IRA remains a Roth, and the 5-year clock keeps ticking, with credit for time ticked during his life. Eventually it will meet the 5 year test.
If the IRA is not converted (or not completely converted)in my uncle's lifetime, can an inherited traditional IRA be converted to an inherited ROTH IRA?
Having answered your questions, I claim my lecture time. You wrote:
I still think that gradually moving his money into a ROTH is the way to go. He will be leaving his IRA to me and I'd prefer to inherit a ROTH IRA.
Well, there's a shocker. I may be overreacting to a poor choice of words, but exactly whose interests are you looking after here? I don't know if you have a legal fiduciary role here or not, but on strictly ethical grounds you need to attend to your uncle's best interest, not yours.
Since passive voice has stuck again I don't know who told you that conversion wouldn't be cost effective, but that person may well have been telling the truth. You have said that the RMD's have sometimes kicked him into a higher bracket. That means that conversion income would also be in that higher bracket. You mentioned that at least once the RMD has meant a higher Medicare B premium. Conversion income could make this a regular occurrence.
It's certainly not clear to me that conversions would best serve your uncle.
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