Inherited IRA rules?
Member since 2024 · 5 posts · 4 votes
Inherited IRA rules?
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Max GallagherBusiness Member
Financial Advisor, CFP · Member since 2018 · 18 posts · 26 votesHi Fred - CFP here. Great question and always worth getting a second opinion.. especially when it comes to inherited IRAs. There might be some confusion around the 60-day rollover rule which allows you to move money from one IRA/401k to another (both pre-tax and Roth). This gives investors some time to complete a rollover and, in some rare cases, can be used as a source of short-term liquidity.
Unfortunately, inherited IRAs are not treated as your own and do not fall under the 60-day rule. As you mentioned, the IRS requires distributions (RMDs) so they can get their money in a timely manner. Rolling funds from an inherited IRA into a pre-tax IRA or converting to Roth is not allowed.
All that said, depending on the size of your RMDs, liquidity needs, and total income, you may consider making deductible contributions to your own IRA ($7k limit, $8k if above 50). While it doesn't directly offset the income picked up from the inherited IRA distribution on your tax return, this could partially or fully offset the tax impact and be a completely legit way to accomplish sort of a backdoor rollover.
For example.. Let's say you inherited a traditional IRA and take a $10,000 distribution this year. That $10,000 is generally taxable income. Separately, if you're eligible, you might be able to contribute $7,000 (for 2025 if under 50) to your own traditional IRA and deduct that amount from your income. While they are two separate transactions, this would essentially leave you with $3k of net taxable income.
Remember there are income limits, contribution limits and other personal factors to consider. Consult with an expert or feel free to send me a private message to talk details.
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4 Replies
- Realtor · Hanover Twp, PA · Member since 2018 · 3k+ posts · 3k+ votes1y
@Fred Robertson, I was actually reading a little about this sort of thing today and it is absolutely the kind of thing where you get a CPA or certified financial planner involved! Once you take an action, that can easily trigger tax consequences.
Also, I believe the rules for how and when you need to divest the money in an inherited IRA differ depending on who you are relative to the deceased. If you are a spouse, minor child, etc the rules are different than if you are an adult friend.
The basic answer to your question is likely yes because I believe anyone who inherits an IRA can roll it over and what you are talking about is a valid way to roll an IRA over I believe but get advice from a professional on this one before taking action.
- Member since 2024 · 5 posts · 4 votes1y
Kevin, Thanks for the reply. My CPA has told me that i can move it from the inherited to my personal IRA, but I am struggling to believe that he is correct. The reason I say that is because, the IRS requires distributions (RMDs) in order to have the taxes get paid on that money eventuallyl. This was my deceased mother's IRA and she was past the age of 75 when she died. I've been taking RMDs each year as required, and to think that now I am allowed to empty the remainder of the account and move it into my personal IRA without paying taxes on the distribution.....well, that seems to generouse to be true from the IRS....
- 1yMax GallagherBusiness MemberFinancial Advisor, CFP · Member since 2018 · 18 posts · 26 votes
Hi Fred - CFP here. Great question and always worth getting a second opinion.. especially when it comes to inherited IRAs. There might be some confusion around the 60-day rollover rule which allows you to move money from one IRA/401k to another (both pre-tax and Roth). This gives investors some time to complete a rollover and, in some rare cases, can be used as a source of short-term liquidity.
Unfortunately, inherited IRAs are not treated as your own and do not fall under the 60-day rule. As you mentioned, the IRS requires distributions (RMDs) so they can get their money in a timely manner. Rolling funds from an inherited IRA into a pre-tax IRA or converting to Roth is not allowed.
All that said, depending on the size of your RMDs, liquidity needs, and total income, you may consider making deductible contributions to your own IRA ($7k limit, $8k if above 50). While it doesn't directly offset the income picked up from the inherited IRA distribution on your tax return, this could partially or fully offset the tax impact and be a completely legit way to accomplish sort of a backdoor rollover.
For example.. Let's say you inherited a traditional IRA and take a $10,000 distribution this year. That $10,000 is generally taxable income. Separately, if you're eligible, you might be able to contribute $7,000 (for 2025 if under 50) to your own traditional IRA and deduct that amount from your income. While they are two separate transactions, this would essentially leave you with $3k of net taxable income.Remember there are income limits, contribution limits and other personal factors to consider. Consult with an expert or feel free to send me a private message to talk details.
24Acres510 Reviews - 1yAshish AcharyaBusiness MemberCPA, CFP®, PFS · FL · Member since 2017 · 5k+ posts · 3k+ votes
@Fred Robertson Unfortunately, you can't roll over funds from an inherited IRA into your own existing IRA unless you're the spouse of the original account holder.
If you're a non-spouse beneficiary, IRS rules do not allow 60-day rollovers from an inherited IRA into another IRA. Any withdrawal you take is treated as taxable income in the year received (unless it’s from a Roth IRA), and you can’t redeposit it elsewhere.
If you are the spouse, you can treat the inherited IRA as your own, and in that case, a rollover may be allowed, depending on the circumstances.
To avoid unexpected taxes, it's best to consult with a tax advisor before moving any inherited IRA funds.This post does not create a CPA-Client relationship. The information contained in this post is not to be relied upon. Readers should seek professional advice.
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