Roth IRA Conversion Possibility for Non-Spouse Beneficiary

An Excerpt from Retire Secure for Professors and TIAA Participants
by James Lange, CPA/Attorney

“This is a sleeper advantage of keeping money in a 403(b) or 401(k) or opening your own 401(k) that I have never seen anyone execute in practice, with the exception of clients of our firm. Notice 2008–30 from the IRS provides a unique opportunity for a non-spouse beneficiary to do a Roth IRA conversion of an Inherited 401(k) or 403(b) plan. Non-spouse beneficiaries of Inherited IRAs are not allowed to do an Inherited Roth IRA conversion of an Inherited IRA. This ability for non-spouse beneficiaries of qualified plans to convert is an additional reason to retain assets in a qualified plan.

This could be a huge opportunity if you are in a higher income tax bracket than your beneficiaries. That is, die with your 403(b) and have one or more of your beneficiaries make a conversion from an Inherited 403(b) to an Inherited Roth 403(b).

Further discussion on this strategic concept is discussed in Chapter 13 when the beneficiary is a disabled or chronically ill beneficiary where this strategy can be enormously favorable, even sometimes measuring in additional tax savings of tens, sometimes hundreds of thousands of dollars.”

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