Can You Convert an Inherited IRA?

After someone passes, their IRA account often passes to their heirs. With its multitude of choices and potential effects on family finances, inheriting someone else’s IRA can have lasting ramifications.

One option would be to transfer ownership of the account through a spousal transfer and treat it as your own, while withdrawing the money is another.


If you inherit an IRA, there are a variety of tax strategies you can implement to minimize tax liabilities associated with it. One approach could be withdrawing assets gradually over ten years rather than in one lump sum to spread out your taxable income and minimize chances of accidentally falling into higher tax brackets by doing this.

As long as you are not the spouse of the deceased account holder, inheriting an IRA does not transfer directly into your own – instead you must establish a trustee-to-trustee transfer of funds between accounts to form your inherited IRA.

Before 2021, beneficiaries of IRAs could “stretch out” withdrawals over decades; this changed with the passing of the CARES Act in 2021. Now only surviving spouses and certain “eligible designated beneficiaries”, including minor children up to age 21 as well as disabled or chronically ill beneficiaries can take advantage of former rules; everyone else must take their first RMD within 10 years after original owner death.


Given the complex tax rules governing inherited IRAs, professional assistance may be needed in navigating through them and making the most of your windfall. A good financial advisor can assist with avoiding common errors while helping maximize your windfall.

Surviving spouses have several options available to them when inheriting an IRA: they can treat it as their own account, which will trigger required minimum distributions based on their age; roll it over into their existing IRA; or disclaim it and pass it along to another beneficiary.

Non-spouse heirs of an IRA account typically have more flexibility, and can choose to either withdraw their share immediately or deplete it over 10 years – the latter option can help minimize withdrawals during high income years and bring them more in line with life expectancies. Whatever they decide, early withdrawal penalties for those under 59 1/2 are still applicable if any early withdrawal occurs before then.

Roth IRAs

Converting an IRA can be a complex decision, so it’s wise to consult a professional before taking this step. Converting during years with lower taxes could also prove advantageous as future taxes could increase.

Heirs of traditional IRAs must include withdrawals in their taxable income while those of Roth IRAs don’t; however, once reaching age 72 or 73 they must take required minimum distributions (RMDs).

If the original owner did not take Required Minimum Distributions (RMDs), their heirs can leave the account alone until year 10 and enjoy tax-free growth. Should they choose to withdraw more than the minimum withdrawal amount, however, a steep tax bill awaits them; hence why many heirs prefer converting their inheritance into a Roth as this gives more control over taxes.

Beneficiary designations

Most financial institutions use a unique account number to identify inherited accounts. Beneficiary names often need to be provided as well, including full legal names, country of citizenship, relationship to the original account holder and either their Social Security/Tax Identification Numbers/address. Beneficiaries can include individuals, trusts or companies.

Non-spouse beneficiaries have two options for handling funds: they can roll them over into their own preexisting IRA or keep the account and take out annual required minimum distributions (RMDs) according to their life expectancy. Their choice will affect both RMD size and income tax implications.

If a beneficiary wishes to change their designation, this can be accomplished by filling out and signing a new form provided by their IRA custodian. As family and other circumstances can often alter, this step is often necessary; however due to complex rules surrounding inherited IRAs it’s wiser to consult a qualified tax professional first before making such changes.

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: