Whether you can convert an inherited IRA to a Roth depends on who left it to you

If your spouse left you an IRA, you can convert it to a Roth IRA. If a parent, sibling, or anyone else left you an IRA, you cannot convert it to a Roth — but you can open a separate Roth and fund it with other money, or you can take distributions from the inherited IRA and pay taxes on them as ordinary income.

The IRS treats inherited IRAs differently based on the relationship between you and the person who died. A spouse has options that other beneficiaries do not. Understanding which category you fall into determines what moves are actually available to you.

Key Takeaways

  • Spouses can treat an inherited IRA as their own or roll it into a Roth IRA, but non-spouse beneficiaries cannot convert an inherited IRA to a Roth under any circumstance.
  • Non-spouse beneficiaries who inherit a traditional IRA must take distributions and pay income tax on them, but the account itself stays in the deceased person's name.
  • The find Act changed the rules for most non-spouse beneficiaries: you must empty the inherited IRA within ten years of the death, though you do not have to take money every year.
  • If you inherit a Roth IRA as a non-spouse beneficiary, you still must empty it within ten years, but distributions come out tax-free.
  • A spouse can roll an inherited traditional IRA into their own Roth IRA and pay taxes on the conversion amount, treating it like any other Roth conversion.

Spouse beneficiaries: the only ones who can convert

If you are the surviving spouse, you have three choices. You can treat the inherited IRA as your own by retitling it in your name. You can roll it into an IRA you already own. Or you can roll it into a Roth IRA — which counts as a conversion and triggers income tax on the amount you convert.

When you roll a traditional IRA into a Roth as a spouse, you pay ordinary income tax on the full balance (or the portion you convert, if you convert only part of it). The converted amount then grows tax-free in the Roth, and you can withdraw it tax-free after age 59½, provided the Roth has been open for at least five years.

You do not have to convert the entire inherited IRA at once. You can convert part of it now and leave the rest in a traditional IRA, or convert it in multiple years to spread the tax bill across different tax years.

Non-spouse beneficiaries: what you can and cannot do

If you inherited an IRA from someone other than a spouse — a parent, grandparent, sibling, child, or friend — you cannot convert that inherited IRA to a Roth. The IRS does not permit it, regardless of how much money is in the account or what your income is.

What you can do is take distributions from the inherited IRA. When you take money out, you pay ordinary income tax on it (if it came from a traditional IRA) or nothing (if it came from a Roth IRA). You can then use that after-tax money to fund a Roth IRA of your own, but the inherited account itself does not become a Roth.

The inherited IRA must stay titled in the deceased person's name, with you listed as the beneficiary. You cannot retitle it as your own the way a spouse can.

The ten-year rule for non-spouse beneficiaries

Under the find Act, which took effect in 2020, most non-spouse beneficiaries must withdraw all money from an inherited IRA by December 31 of the tenth year after the death. This applies whether the inherited account is a traditional IRA or a Roth IRA.

You do not have to take the same amount every year — you can take nothing for nine years and then empty it in year ten, or take money whenever you want as long as it is all gone by the important date. The only exception is if the deceased person was already taking required minimum distributions (RMDs) when they died; in that case, you must take at least the RMD amount each year for the first nine years.

If you miss the important date and do not empty the account by the end of year ten, the IRS charges a 25 percent penalty on the amount that should have been withdrawn. That penalty can be reduced to 10 percent if you correct the mistake within two years.

Tax consequences of inheriting a traditional versus Roth IRA

When you inherit a traditional IRA and take distributions, you pay ordinary income tax on every dollar you withdraw. This is true whether you inherited it from a spouse or not. The tax is owed in the year you take the money out.

When you inherit a Roth IRA, distributions are tax-free — you do not owe income tax on the money you withdraw. This is one of the major advantages of a Roth: the tax-free growth and withdrawals pass to your beneficiaries as well.

If you are a non-spouse beneficiary who inherited a traditional IRA and you want to move money into a Roth, the only path is to take a distribution from the inherited IRA (and pay tax on it) and then contribute that after-tax money to a Roth IRA you open in your own name. You are not converting the inherited account; you are using distributions from it to fund a separate account.

Inherited IRAs and the pro-rata rule

If you inherited an IRA and you also have your own traditional IRA with pre-tax money in it, the pro-rata rule may affect how much tax you owe when you take distributions from the inherited account.

The pro-rata rule says that when you take a distribution from any traditional IRA, a portion of it is treated as coming from pre-tax contributions and a portion from after-tax contributions. The IRS calculates this by looking at the total value of all your traditional IRAs (including the inherited one) on December 31 of the year you take the distribution.

This rule can make inherited IRAs more expensive to convert or distribute if you have significant pre-tax money in your own accounts. A tax professional can help you understand whether this affects your situation.

What happens if you do nothing with an inherited IRA

If you inherit an IRA and do not take any action, the account stays in the deceased person's name. For non-spouse beneficiaries, you still must empty it within ten years or face the 25 percent penalty on the shortfall.

For spouse beneficiaries, if you do not take action, you are still required to take required minimum distributions (RMDs) starting at age 73 (as of 2023, though this age may change). Failing to take an RMD results in a 25 percent penalty on the amount not withdrawn.

The safest approach is to contact the financial institution holding the inherited IRA and ask what paperwork they need from you to establish yourself as the beneficiary. This does not lock you into any particular strategy — it straightforward makes the account official in your name so you can make decisions about it later.

Frequently Asked Questions

Can I convert part of an inherited IRA to a Roth if I am the spouse?

Yes. You can roll part of the inherited IRA into a Roth and leave the rest in a traditional IRA. You pay income tax only on the amount you convert. This lets you spread the tax bill across multiple years if you convert in installments.

What if the person who left me the IRA had already started taking required minimum distributions?

If you are a non-spouse beneficiary, you must continue taking at least the RMD amount each year for the first nine years after the death. After that, you can take the rest whenever you want before the ten-year important date. If you are a spouse, you can treat the IRA as your own and follow your own RMD rules instead.

Do I have to report an inherited IRA on my tax return?

You report it only when you take distributions. The distributions are reported on your Form 1040 as IRA distributions. The inherited IRA itself does not appear on your return unless you are taking money out that year.

Can I move an inherited IRA to a different financial institution?

Yes. You can request a direct transfer (also called a trustee-to-trustee transfer) from the current institution to another one. This does not count as a distribution and does not trigger taxes. The account stays titled in the deceased person's name with you as beneficiary.

What if I inherited an IRA from someone who was not a U.S. citizen?

The rules are the same for non-citizen decedents. However, if you are a non-citizen spouse, you cannot roll an inherited IRA into a Roth or treat it as your own — you must take distributions. A tax professional who handles international situations can advise you on your specific circumstances.