Ask The Hammer – Inherited and Roth IRAs

Key Takeaways

• You cannot convert an inherited traditional IRA to an inherited Roth IRA under any circumstances—this option is completely prohibited by law.
• You CAN convert an inherited 401(k) or 403(b) directly to an inherited Roth IRA as a designated beneficiary, allowing your heirs to take advantage of 10 years of tax-free growth before distributing the funds.
• If you leave your 401(k) with your former employer instead of rolling it over to an IRA, your beneficiaries gain the ability to convert those funds to an inherited Roth IRA—a benefit unavailable with inherited IRAs.
• Consider multiple factors when deciding whether to roll over your 401(k), including whether you want to do qualified charitable distributions during your lifetime (only possible with IRAs, not 401(k)s) versus giving heirs the Roth conversion option.
• The inherited Roth conversion strategy is just one factor among many in your rollover decision and typically isn't the primary decision-maker, but it's worth evaluating in your overall retirement and estate planning strategy.