Can You Convert An Inherited IRA To A Roth IRA?

If you’ve ever inherited a retirement account, you’ve probably wondered how to use the funds best. Your new account can help jump-start your journey towards financial freedom. Converting some of your inherited IRA to a Roth account could be a great way to minimize your taxes on retirement income.

Can You Convert An Inherited IRA To A Roth IRA?

When you inherit an IRA from a person other than your spouse, you cannot directly convert it into a Roth IRA. However, there can be strategies to help get some or all of the assets from your newly inherited IRA into a Roth account.

What If I Inherit My Deceased Spouse’s IRA?

When you inherit an IRA from your spouse, the IRS allows you to treat the account as your own. This means you can move the IRA from your deceased spouse’s name into your own. From there, you could do Roth conversions to move some or all of the funds into an account that will grow and can be withdrawn tax-free.

How You Can Convert Your Late Spouse’s IRA To A Roth

The biggest hassle here is usually moving the account from your spouse’s name to your own. Talk with the investment company; they can provide you with the likely large stack of paperwork to open a new IRA in your name.

Once the funds have been moved into an IRA in your name, you can follow the standard guidance on making the most of a Roth conversion tax-planning strategy.

Other Ways To Get Inherited IRA Assets Into A Roth

If you inherited an IRA from someone other than your spouse, there are a few other ways to transfer those funds into a Roth account. Your new inherited IRA will have required minimum distributions (RMDs) that will need to be taken. You will owe taxes on these withdrawals.

If you aren’t already maxing out your Roth IRA or Roth 401(k), you can take the RMDs each year from your inherited IRA and use them to top off your Roth contributions for the year. If you are already maxing out both of these contributions, you could look into making a mega-backdoor Roth contribution if your workplace 401(k) allows for them.

When Is The Best Time For A Roth Conversion?

If you try to convert a large inherited IRA into a Roth account, you will most likely benefit from spreading the conversions over several tax years. Some of the best times to do a Roth conversion are: 1) When you have a relatively low-income tax year. 2) Between Retirement and needing to take RMDs on your own retirement accounts. 3) When you expect to be in higher tax brackets in the future. 4) Before moving to a higher tax state.

Generally speaking, the younger you are, the more beneficial Roth conversations can be. If you are lucky enough to inherit a sizable IRA or 401(k), work with a fiduciary financial planner to build a strategy to help your inheritance help you stay on track for financial freedom. At the very least, let them help you develop a strategy to help pay the fewest taxes over your lifetime.