Can I convert an inherited IRA, 401(k) or 403(B) to a Roth IRA? In this episode of Ask The Hammer, Jeffrey Levine – aka The Hammer – answers the question: Can I convert an inherited IRA, 401(k) or 403(B) to a Roth IRA?…(read more)

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Many people inherit Individual Retirement Accounts (IRAs), 401(k)s, or 403(B)s from a loved one. In some cases, they wonder if it is possible to convert an inherited plan to a Roth IRA. The short answer is: it depends on which type of plan you inherited.

Inherited Traditional IRA: If you inherited a traditional IRA from someone who was not your spouse, you cannot convert it to a Roth IRA. Instead, you will need to take Required Minimum Distributions (RMDs) each year based on your life expectancy. These distributions will be taxed as ordinary income.

Inherited 401(k) or 403(B): If you inherited a 401(k) or 403(B) from someone who was not your spouse, you cannot convert it to a Roth IRA while it is still in the plan. However, you may be able to roll it over to an Inherited IRA and then convert that to a Roth IRA. This conversion will be taxed as ordinary income.

Inherited Roth IRA: If you inherited a Roth IRA from someone who was not your spouse, you have three options. First, you can take the RMDs based on your life expectancy. Second, you can withdraw the entire account balance by the end of the 10th year after the account owner’s death. Third, you can choose to treat the inherited Roth IRA as your own and continue making contributions and taking tax-free withdrawals.

Spousal Inherited IRA, 401(k), or 403(B): If you inherit an IRA, 401(k), or 403(B) from your spouse, you can convert it to a Roth IRA. This conversion will not be taxed as long as you follow the rules. You must be named as the sole beneficiary of the account, and you must roll over the funds to your own Roth IRA within 60 days of receipt. Alternatively, you can ask the trustee of the inherited account to transfer the funds directly to your Roth IRA custodian.

In conclusion, the rules for converting an inherited plan to a Roth IRA are somewhat complicated. It is best to consult with a tax professional or financial advisor to determine which option is best for you. By understanding your choices and the tax consequences, you can make an informed decision that suits your needs and goals.