A Gift From the IRS June 16, 2008

Earlier this year our servants at the Treasury gave retirement plan participants a very big gift.
Coming as a complete surprise, in March the IRS informed the public, through a notice, that non-spouse beneficiaries can convert inherited retirement plan balances to inherited Roth IRAs!

That’s a big deal?
It could be; think about it. A retirement plan participant, a grandfather, aunt, distant cousin, a friend dies with a goodly amount in their retirement plan. They name a grandchild, niece, or a child of a friend (non-spouse beneficiaries) who is much younger and does not have a lot of taxable income themselves.
That beneficiary can now convert that amount directly to a Roth IRA. With a long time horizon for the young person and decent investment growth, the money in this inherited Roth IRA could be a goldmine at retirement.

Any Drawbacks?

There are a few hurdles to overcome. The inheritor’s income must be less than $100,000, for 2008 and 2009; that limitation goes away in 2010. Plus the company’s plan must also permit it.

Benefit Could Be Huge

This is a very specialized area; proper execution is required. If you want more information – please be sure to call.