Using Inherited IRAs to Fund Current Roth Contributions

Here is a great hack for student with summer jobs and zero tax liability.

When my mom was alive, I set up her retirement accounts to have her grandchildren as the beneficiaries. My rationale was that the RMDs for minor children would be much lower than for my sister or me.  This has worked out that way.   However, it has created the complexity of additional accounts to track and manage.

Now that my daughter is old enough to work, I have a solution that will simplify the accounts and maintain tax free growth of a Roth IRA. First I will withdraw in entirety the traditional IRA over three years, to stay below $450 of unearned income to avoid federal taxes on her income.   These withdrawals will immediately be use as Roth IRA contributions.   Next, we will withdraw funds from the inherited Roth to fund current Roth IRA contributions.

Over 3-4 years, all the inherited IRA funds will be withdrawn and put in her contributory Roth IRA.  Eliminates two accounts that have RMDs (that need to be calculated and withdrawn each year) and funds her Roth IRA completely, without using funds from her current income.  

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This is not financial, IRA, nor tax advice. Please consult a professional advisor.

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