Q&A: Can I Convert an Inherited IRA to Roth?

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Inheritance, almost uniquely, has the ability to anger both those who believe in equality of means and those who believe in equality of outcome. Imagine a wealthy father who was able to amass more wealth than another similar dad; this is inequality of outcomes. And then that wealthy deceased father passes his fortune on to his one child while the poorer dad passes on very little and divides it among his three children. This creates an inequality of means for the next generation.

Although equality may divide party lines, the jealousy and bitterness surrounding inheritance may not be divided. Most people just hate heirs.

Unfortunately, this means that inheritance rules and taxation is often some of the most restrictive and punitive regulation.

On the topic of inherited IRAs, I recently received the following reader question:

Can an inherited IRA be converted upon your death to a Roth IRA and the taxes be paid by the estate at that time?

Unfortunately, the answer is very clearly no. Roth conversions can only be performed during the IRA owner’s lifetime. You cannot write a provision to convert the assets to Roth IRA into your will, trust, or beneficiary designations.

You cannot rollover an inherited IRA into any other type of account, and you also cannot convert a traditional inherited IRA to a Roth. Inherited IRAs, unlike all other kinds of IRAs, do not allow contributions.

Furthermore, their required minimum distributions are subject to an entirely different set of rules, which were made more complicated with the 2020 SECURE Act.

All you can do is take distributions, either your required minimum distributions or more than that, from an inherited IRA.

These restrictions on inherited IRAs are one reason why systematic Roth conversions during your lifetime can be worth so much. Your lifetime (or your spouse’s lifetime thanks to a Spousal Rollover) is your only chance to shelter your retirement assets in a post-tax Roth IRA.

Once you have passed away, your heirs are required to distribute the assets in only a few years (often 10 years now) and, in the case of a traditional IRA, pay the tax owed on those assets.

Many retirees are in a lower tax bracket during their own retirement than their heirs will be, which makes systematic Roth conversions beneficial not only for you but for the next generation as well.

Photo by Sachiko Zorrilla on Unsplash

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Chief Operating Officer, CFP®, APMA®

Megan Russell has worked with Marotta Wealth Management most of her life. She loves to find ways to make the complexities of financial planning accessible to everyone. She is the author of over 800 financial articles and is known for her expertise on tax planning.