Can you convert an inherited IRA to a Roth IRA?

If you've inherited a traditional IRA and are curious about your retirement savings options, you may be wondering if you can convert your inherited IRA to a Roth IRA. After all, Roth IRAs have many advantages, such as tax-free income for life and more control over when you withdraw money.

The short answer is: you can't. Unless you inherited an IRA, you cannot convert an inherited IRA to a Roth IRA. But that doesn't mean you're out of options. Read on to find out what they are or how you are can If you are a spouse, rollover an IRA.

Can you convert an inherited IRA to a Roth IRA?

If you're a non-spouse, you generally won't be able to roll it over to a Roth IRA. Depending on whether the person specifically named you as the beneficiary, and with a few exceptions like being disabled or a minor, you'll generally have to empty the account within 5 to 10 years.

What if I inherit my spouse's IRA?

If you are, the rules are different. In this case, the IRS offers two options. You can keep an inherited IRA in your spouse's name while you are named as the beneficiary, which requires you to take minimum distributions (RMDs) on which you will owe taxes.

Alternatively, the IRS allows you to make an inherited IRA your own by registering yourself as the account holder, then you can do whatever is normally allowed with it, including converting it to a Roth IRA.

How to Convert Your Deceased Spouse's IRA to a Roth

The rules for converting an inherited IRA from your spouse into your own Roth IRA are the same as the others, with a few differences. Here's how it will work:

1. Make sure you can manage the tax impact: You will owe tax on the amount you convert. Make sure you know how much this will add to your tax bill and can afford it up front. Alternatively, you can do a Roth conversion over several years to spread the tax impact.
2. Make sure you have a Roth IRA: You'll need a Roth IRA to keep your money. If you don't already have one open, do so before you begin.
3. Get a copy of your spouse's death certificate: You'll need a way to prove your spouse is dead so you can take over the account. A death certificate for your spouse will work.
4. Contact your spouse's investment company: Check with the investment firm that manages your spouse's IRA and find out what requirements it has. For example, you may need to sign a spousal claim form for IRAs.
5. Start a Roth conversion: You have two options for converting your spouse's inherited IRA to your own Roth IRA. You can do a direct IRA transfer between your spouse's account and yours, or you can do an indirect transfer, where you'll be given a check to deposit into your Roth IRA.
6. Pay the taxes: You will pay when you file your tax return at the end of the year.

Alternatives to Converting an Inherited IRA to a Roth IRA

If you are from someone who is not your spouse, your options depend on several things, such as whether the deceased specifically identified you as . You will fall into one of these three camps with the following options:

• You are specifically designated as the beneficiary: In this case, you will have to empty the inherited IRA account within 10 years.
• You are the designated beneficiary and meet certain conditions: If you are disabled or chronically ill, close in age (10 years apart or less), or a minor, you can take over the rest of your life.
• You inherited an IRA without naming it as a beneficiary: If the court decides you inherit the IRA, your options depend on the original account owner. If the deceased has already started taking RMDs, you will receive distributions according to their schedule. Otherwise, you will have to empty the account within five years.

As you can see, you may be required to start withdrawing money from an IRA someone bequeathed to you right away, rather than when you retire. If you do this from your own IRA, a .

However, you must include any deductions you have for that year and pay income tax on it. So, if you're inheriting a large amount and you're on a time constraint, you can spread out the distributions to limit the tax impact. For example, if you inherit $1 million as a designated beneficiary, you can withdraw $100,000 a year to limit paying tax on $1 million of income at a time.

Once you withdraw your money, you can do whatever you want with it—even roll it over to your Roth IRA with normal contributions as long as you're eligible. You'll still make more money in a Roth IRA; it won't be as efficient as rolling over an inherited IRA on its own.

Frequently Asked Questions (FAQ)