Can an Inherited IRA Be Converted?

Can an inherited IRA be converted

After an IRA owner dies, his or her beneficiary must decide how best to manage its assets. Spousal beneficiaries have several options when managing this inheritance; one would be rolling over assets into their own IRA and using life expectancies to calculate required minimum distributions.

Before taking any actions with regards to finances, it’s crucial to seek the advice of an expert in this area. Financial regulations can be complex and any mistakes could prove costly.


Taxes should always be the priority when considering inheritance assets in an IRA account, and beneficiaries have various strategies available to them for keeping tax-deferred growth intact. One is “assuming ownership”, whereby assets acquired as inheritance can be added directly into existing IRAs under their own names (known as “rollover”). This strategy ensures tax-free growth for inherited funds.

Alternately, an heir can opt for taking a lump sum distribution and paying income taxes upon it immediately – which may be preferable in cases involving younger beneficiaries but could increase taxable income and potentially sacrifice some tax-deferred growth potential in their account.

Traditional IRAs that have been passed down through inheritance come with strict required minimum distribution rules that must be observed. RMDs must be taken within 10 years after the death of the original owner and usually depend on their life expectancy. An heir who is the surviving spouse may rollover into his or her own IRA without incurring a 10% penalty fee, while all other beneficiaries must pay income taxes on any distributions received from it.


As soon as someone passes away, it can be emotionally and financially challenging to deal with their estate. An inherited IRA adds another level of complexity; there are numerous complex rules which must be observed and respected. Therefore, beneficiaries should speak with a fiduciary financial professional who specializes in dealing with inheritance IRAs before proceeding further with this matter.

An inherited IRA is defined as any individual retirement account left by its deceased owner to one or more beneficiaries upon death, such as traditional, Roth, SEP-IRAs and simple accounts. Funds should usually be distributed within 10 years from death of original account holder.

Beneficiaries have two options when inheriting an IRA: either rolling it over into their own IRA or taking lump-sum distributions and paying tax at that time; however, most would do well to wait and allow the funds to distribute over time so as to benefit from decades of potential tax-deferred growth.

Assumption of ownership

An inherited IRA refers to any retirement account left by its original owner upon their death and received by their beneficiary as part of their inheritance. It may take the form of any type of IRA – traditional, rollover, SEP and SIMPLE accounts can all fall under this classification. Beneficiaries typically transfer these funds into their own inherited IRA so as to postpone required minimum distributions (RMDs) until age 70 1/2.

Beneficiaries can transfer an inherited IRA directly between trustees or take a lump sum distribution and deposit it within 60 days into an IRA account. Withdrawals from an inherited IRA will be taxed as income but won’t incur the 10% early withdrawal penalty that applies for those under 59 1/2. Beneficiaries should always consult a financial and/or tax advisor in order to fully understand their inheritance options and obligations; requirements can differ depending on their relationship to the original IRA owner and age when they die.


When inheriting an IRA, it is crucial that the assets be distributed effectively – this decision may impact taxes, fees and performance as well as depending on whether the deceased was the spouse, child or non-spouse beneficiary and how the IRA was set up.

Alternatively, if the deceased account owner was their spouse, then their inheritance can be placed into an existing IRA in their name and treated as though it were always owned by them; then withdrawal rules will still apply; however if any funds are withdrawn before age 59 1/2 they are subject to an early withdrawal penalty of 10%.

Non-spouse beneficiaries have limited options available to them when inheriting from someone who passes. Either they can transfer their inheritance directly between trustees, or take required minimum distributions (RMDs) over 10 years – although this option could prove complicated with additional fees and taxes to consider.

Raymond Banks Administrator
Raymond Banks is a published author in the commodity world. He has written extensively about gold and silver investments, and his work has been featured in some of the most respected financial journals in the industry. Raymond\\\'s expertise in the commodities market is highly sought-after, and he regularly delivers presentations on behalf of various investment firms. He is also a regular guest on financial news programmes, where he offers his expert insights into the latest commodity trends.

Categorised in: