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INHERITED IRAS AND SEP ACCOUNTS: TODAY’S SLOTT REPORT MAILBAG

By Andy Ives, CFP®, AIF®
IRA Analyst

Question:

I have a non-spousal inherited IRA account.  Once I take out my RMD for the year, am I able to take out excess funds and roll those into a Roth account?

Thank you.

Answer:

Inherited IRA accounts do not follow all the same rules nor do they have all the same benefits as your own IRA. For one, inherited IRA dollars are not permitted to be converted to a Roth IRA. This is true even if you have satisfied your RMD for the year on that inherited IRA account. You could use a withdrawal from the inherited IRA to make a contribution to a Roth IRA – assuming you are otherwise eligible to contribute to a Roth – but a conversion is not allowed.

Question:

Hi there! Can someone possibly clear up a very confusing Form 5498 issue for a SEP accounts? I understand the 5498 reports the contributions when they are actually received between Jan 1st through December 31st of any given tax year. This is regardless of the year for which the contribution is intended for. In short, for a SEP, the plan trustee ignores the whole current year/prior-year coding – for 5498 reporting purposes. So, here’s the uncertainty that results: does the IRS compare the taxpayers claim (on their tax return) of their deductible contribution against the trustee’s reported 5498 (which again ignores the intended year on contribution)?

Thank you so much!

Mike

Answer:

Mike,

This is a common question. The concern stems from the fact that, because the IRA custodian reports SEP contributions on a calendar year basis and the employer can designate a SEP contribution for a prior year, confusion will happen. This is not a problem. The IRS eventually sees Form 5498 which the custodian files for each calendar year and sees the total SEP contributions made by the employer as reported on the tax return. To ensure accuracy, the IRS will overlay what the tax filing claims vs. the 5498 Forms year after year.

https://www.irahelp.com/slottreport/inherited-iras-and-sep-accounts-todays-slott-report-mailbag

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