By Ian Berger, JD
IRA Analyst
Question:
Hi,
In a recent blog post, you addressed the complicated rules for a 401(k) to Roth IRA rollover. I have a similar question as it relates to a pre-tax IRA conversion to a Roth IRA.
My client is a 95 year-old woman who has a large pre-tax IRA. She has converted some of the pre-tax IRA to a Roth IRA. This is her first Roth IRA ever.
Suppose she dies three years later, prior to the 5-year holding period being met. The Roth IRA passes to her beneficiaries, who fall under the 10-year payout rule. But what is taxable and what is not?
Thank you in advance,
Bob
Answer:
Hi Bob,
The converted amounts themselves will be tax-free whenever paid out to the beneficiaries. Earnings on the converted amounts will be tax-free only if taken after the 5-year holding period has been satisfied. That period began on January 1 of the year of the first Roth conversion and is carried forward to the beneficiaries. It does not restart for the beneficiaries. So, for example, if your client did her first Roth conversion anytime in 2024, her 5-year period began on January 1, 2024, and even if she dies in 2027, it will end on December 31, 2028. After 2028, the entire inherited Roth IRA will be available tax-free.
Question:
I have three SEP IRAs with three different custodians. I still contribute to one of the SEPs on an annual basis. I am over age 70½. Can I take a qualified charitable distribution (QCD) out of one of the SEP IRAs I am not contributing to?
Answer:
Yes. A QCD can be made from any “inactive” SEP or SIMPLE IRA. A SEP or SIMPLE IRA is considered inactive for a year if an employer contribution isn’t made to it for that year.
If you have technical questions you would like to have answered, be sure to submit them to mailbag@irahelp.com, to be answered on an upcoming Slott Report Mailbag, published every Thursday.
https://irahelp.com/slottreport/inherited-roth-iras-and-qualified-charitable-distributions-from-sep-iras-todays-slott-report-mailbag/