03 May How am I taxed if I convert my inherited IRA to a Roth?

Q. My mom passed in 2020 and I inherited an IRA. I know I have 10 years to transfer the money to another account. I haven’t taken any withdrawals. Can I convert it to a Roth IRA all at once, paying taxes once, or should I take money out yearly and put it in a Roth then?
— Beneficiary

A. We’re sorry to hear about the loss of your mother.

IRS rules are very specific, and sometimes complicated, so we’re glad you asked.

Only a spouse can convert an inherited IRA to a Roth IRA, said Dawn Brown, a certified financial planner with Peapack Private Wealth Management in New Providence.

“As you inherited the IRA from your mother it cannot be converted to a Roth IRA,” Brown said. “You may be able to make contributions to a Roth IRA based on your earned income and your tax filing status.”

For example, she said, if you file as married filing jointly, contributions are allowed if adjusted gross income falls between $204,000 and $214,000. If you file taxes as a single filer, contributions are allowed if your adjusted gross income is between $129,000 and $144,000.

In terms of your withdrawals from the inherited IRA, the IRS issued proposed regulations in February about distribution rules, Brown said.

You mentioned that you know that you have 10 years to take out the withdrawals.

The recent proposed regulations discussed the 10-year rule, she said. It concerned whether beneficiaries would have to take annual distributions or simply take the money out at the end of 10 years.

“If your mother died prior to her required beginning date — before she had to start taking distributions from her IRA account — then the 10-year rule applies,” Brown said. “If your mother passed away after her required beginning date, then annual distributions are required from the IRA and the 10-year rule also applies according to the proposed regulations.”

It may be possible that final regulations are issued before the end of the year, Brown said.

“If your mother passed away after she was required to take withdrawals, you should seek the help of a tax advisor nearer the end of the year to help determine if you are subject to annual withdrawals,” she said.

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This story was originally published on May 3, 2022.

NJMoneyHelp.com presents certain general financial planning principles and advice, but should never be viewed as a substitute for obtaining advice from a personal professional advisor who understands your unique individual circumstances.