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One of the provisions that is available to the individual who inherits a 401(k) or other Qualified Retirement Plan (QRP) is the ability to convert the fund to a Roth IRA.

This gives the beneficiary of the original QRP the option of having all of the tax paid up front on the account, and then all growth in the account in the future is tax free, as with all Roth IRA accounts.

What’s a bit different about this kind of conversion is that, since it came from an inherited account, the beneficiary must take distribution of the account over the prescribed distribution period, which could be 10 years, or it could be over the lifetime of the beneficiary. This means that, in order for this maneuver to be beneficial, the heir should be in a relatively low tax bracket during the year of the conversion – making

Keep reading this article on Financial Ducks In A Row.

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