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Blogs - Ask Ed Slott
Examining Non-Spousal Beneficiaries
Thursday, November 8, 2012
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If I am a non-spouse beneficiary and take the full amount of the inherited IRA, will I receive a tax form at the end of the year in my name, in the deceased name or will both receive forms?

The custodian will send you IRS Form 1099-R showing a death distribution from an inherited or beneficiary IRA. It will be in your name and Social Security number because you will be responsible for paying the income tax on it. The custodian should not send the decedent a Form 1099-R on the funds you withdrew.

I've read Ed Slott's IRA books and watched his TV programs on PBS, and I've learned much from doing so.  Here are my questions.

  1. I'm considering converting my IRA to my Roth IRA soon (either full or partial, TBD).  I'm almost 61 years old and opened my Roth IRA about 10 years ago and have been contributing to it annually since then.  If I convert, do I have to wait 5 years to withdraw amounts, or will I be able to withdraw amounts from my Roth IRA (including amounts that I will convert) without incurring an early distribution penalty?  I assume since I'm over 59-1/2 and have had the Roth IRA open for 10 years that ALL amounts (existing and converted) will be tax free and penalty free, is that correct?
  2. Must I convert before 12/31/12 to be taxed at current tax rates or will I be able to convert up until the time I file my taxes for 2012 (approx. next April 15, 2013) and be taxed on the conversion at the same tax rates or will I be subject to higher tax rates if I convert after 12/31/12?
  3. I "think" converting is the right thing to do, but I'm a little nervous about it.  Ed makes a very strong case for converting.  I've ran calculators, and it "appears" I would be coming out ahead.  Do you have any resource on helping me decide to convert or not?

Thank you!

Terry Gregory

Atlanta, Georgia

1. In this case, because you are over age 59 ½, there is no longer a 10% early distribution penalty. You do not have to wait five years to take any funds from your Roth IRA because all distributions from this point forward are “qualified” (tax and penalty free) because you’re over age 59 ½ and you’ve had a Roth IRA for more than five years.

2. The funds must be actually distributed from the Roth IRA in 2012 to be taxed at the current (lower) tax rates. Technically you have 60 days from the date of the distribution to do the conversion, so you could take the funds out in late December 2012 and complete the conversion in January 2013. It’s easier though to do both the distribution and conversion in 2012. You cannot take a distribution in April 2013 and have it taxed for 2012.

3. The best resource is an educated advisor. Please see our website for a list of Ed Slott trained Elite IRA Advisors.

(1) Comment
Depends on plan definition. Doesn't IRC define J&S with reference to a spouse? If the plan pays a J&S to a non-spouse, will that cause 415 limit problems? Your example of 60/20/20/20 is NOT equivalent to a 100% J&S with the spouse.

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Posted by stell j | Wednesday, January 02 2013 at 8:00AM ET
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