By Andy Ives, CFP®, AIF®
If an 80-year-old converts his IRA to a Roth account and dies the following year, when can the beneficiaries begin withdrawing money tax-free from the Roth? Do the beneficiaries have to wait for the expiration of the 5-year period following the conversion?
Thank you for your response.
Since the IRA owner already paid taxes on the converted dollars, any converted funds will be immediately available to a beneficiary tax-free. When it comes to earnings in that same Roth IRA, it is a little trickier. Regarding the earnings, it depends if the 80-year-old ever had a Roth IRA before. If the conversion (when he was 80) is his first exposure to a Roth IRA, then the beneficiaries will have to wait the full 5 years from January 1 of the year of conversion before the earnings will be tax-free. (It does not matter if a beneficiary has his own IRA.) If the 80-year-old already had a Roth IRA for 5 years, the earnings will be immediately available tax-free to his beneficiaries.
I enjoy reading the Slott Report mailbag articles, and I’ve learned a lot. Thanks! Your recent post on spousal IRA’s was timely and did prompt a couple follow-up questions:
1. Is the spousal IRA contribution limit $7,000 (for a couple aged 61)?
2. Can a spousal IRA contribution for a prior year be made until April 15th?
3. Can a spousal IRA contribution be made into a Roth account?
Thanks for reading! Yes, a spousal IRA contribution is limited to $7,000 ($14,000 combined) assuming both spouses are age 50 or over and the working spouse has enough earned income to make the contributions. It can be made up to April 15 for the prior year (April 18 for 2021). And yes, a spousal contribution can be made to a Roth IRA. Just be aware of the income phase-out limits for Roth IRA contribution eligibility.