By Andy Ives, CFP®, AIF®
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My husband is the sole beneficiary of a Traditional IRA owned by his cousin, who recently passed away. From my research, I believe my husband fits the exception criteria of “eligible designated beneficiary” in that he is not more than 10 years younger than the deceased (he is 9 years younger…he is age 72 and the deceased was age 81). As such, from what I read, he does not have to empty the inherited IRA account within 10 years and can withdraw his RMDs using the stretch IRA method. Can you please confirm this? (I know that for the year of his cousin’s death – 2022 – he needs to take whatever RMD she still needed to take…but after that, it looks like he can stretch his RMDs and does not have to empty the account within 10 years).
Excellent detective work! You are correct on all points. Since your husband is not more than 10 years younger than the original account owner (his cousin), then he qualifies as an eligible designated beneficiary and can stretch required minimum distributions (RMDs) over his own single life expectancy. Since the cousin died this year, then RMDs for your husband will begin in 2023 using his own age next year and the applicable factor from the IRS Single Life Expectancy Table. You are also correct that your husband is responsible for taking his cousin’s year-of-death RMD. That needs to be withdrawn before the end of this year.
Wondering if you have any formula or analysis of determining whether converting some or all of a traditional IRA to Roth is recommended?
There is no universal formula for determining whether, or how much, of an IRA should be converted to a Roth IRA. Every situation is different, and there are several factors to consider. For example, do you have available funds to pay the taxes on the conversion? (Preferably these funds would come from a source other than the IRA.) Who is the beneficiary? (If it is all going to charity, then don’t convert.) What do you think future tax rates will be? (If higher, then conversion could be a good idea.) Are you of RMD age? (The RMD must be taken before any conversion, so that will impact taxable income and how much to convert.) Are you subject to IRMAA surcharges? Do you have financial aid based on income? (Both items could be impacted by a conversion.) Before doing any conversion, an independent analysis of that specific situation must be completed before any decision can be made.