She Inherits a $400,000 IRA From Her Father and Wants a Roth Conversion. The IRS Says No

Federal rules block a move that may seem sensible on the surface, and the account custodian has no authority to approve it. The real lesson is that the IRS draws a hard line here, even though a few quieter planning choices can still influence the tax bill by thousands of dollars.

Consider a hypothetical example. Dana, an adult daughter, is the beneficiary of her father’s traditional IRA, which has a balance of $400,000. She wants to convert the entire account to a Roth IRA so future growth can be withdrawn tax free, but the custodian rejects the request. Federal law supports that decision. A non-spouse heir cannot convert an inherited IRA. What she can do is choose when, and how quickly, the money becomes taxable income.

Why Non-Spouse Heirs Cannot Convert

A Roth conversion is treated as a rollover. Under 26 U.S.C. § 408A(e)(1)(B)(i), a qualified rollover contribution from an IRA must satisfy section 408(d)(3). Treasury Regulation 26 CFR 1.408A-4, A-1(a) applies that standard to conversions. Paragraph A-1(c) explains that the converted amount is treated as a distribution plus a rollover contribution, even when the transfer is made trustee to trustee.

Dana’s plan fails at section 408(d)(3). An IRA is inherited when the beneficiary “acquired such account by reason of the death of another individual” and was not that person’s surviving spouse (§ 408(d)(3)(C)(ii)). Rollover treatment does not apply to those accounts. Publication 590-B (2025) puts it plainly: a non-spouse heir “can’t treat the inherited IRA as your own” and “can’t roll over any amounts into or out of the inherited IRA.” The only transfer available is a trustee-to-trustee move into another IRA kept in her father’s name for her benefit.

A Surviving Spouse Has More Options

If Dana’s mother had inherited the account, she would have had three choices: treat herself as the owner, roll the funds into her own IRA, or remain a beneficiary. Once she owns the IRA, Publication 590-A allows a conversion from any traditional IRA, and the converted amount “may be included in gross income and subjected to ordinary income tax.” In any year when she owes a required minimum distribution, that distribution must come out before a conversion. Under A-6, the first dollars withdrawn during that year count toward the RMD.

Inherited 401(k)s Work Differently

Employer plans give non-spouse heirs a Roth route that inherited IRAs do not. Publication 590-A says a non-spouse designated beneficiary of a deceased employee may roll an eligible rollover distribution into a Roth IRA, but only “by a direct trustee-to-trustee transfer into an inherited Roth IRA.” The taxable amount is included in income, and the inherited-account distribution rules still apply. If her father had rolled his 401(k) into an IRA before his death, Dana would inherit an IRA and this option would disappear.

Publication 590-B defines an eligible designated beneficiary as a surviving spouse, a minor child, a disabled or chronically ill individual, or someone no more than 10 years younger than the account owner. Dana, as a healthy adult daughter, does not fall into any of those categories. She must empty the account by December 31 of the year containing the 10th anniversary of her father’s death. If he died before his required beginning date, no annual withdrawals are required before that deadline. If he died on or after that date, she must also take required minimum distributions in the intervening years.

Spreading Withdrawals Can Keep Income in Lower Brackets

Assume for illustration that it is tax year 2026, Dana files as single, earns $100,000 in wages, takes the $16,100 standard deduction, and her father died before his required beginning date. To keep the example simple, the account does not grow.

1. Taxable income before any IRA money: $100,000 − $16,100 = $83,900.
2. An even spread over the payout period: $400,000 ÷ 10 = $40,000 per year. Taxable income rises to $83,900 + $40,000 = $123,900. In 2026, the 24% rate applies above $105,700 and 32% begins above $201,775, so the top portion of her income is taxed at 24%.
3. One lump sum in a single year: $83,900 + $400,000 = $483,900. The 35% rate applies above $256,225 and 37% above $640,600, so the top portion of her income is taxed at 35%.

Tax brackets change with inflation, investment gains can make withdrawals larger, and state taxes can add more to the total. The inherited-IRA conversion ban is one of several understated rules that can erode a retirement account, and the rest were mapped in a free tax trap guide.

Using Withdrawals to Support Her Own Roth Moves

Money from an inherited IRA can help Dana fund Roth planning for her own accounts, within certain limits.

• Roth contributions: Eligibility depends on compensation, meaning “what you earn from working.” Her wages satisfy that requirement. Inherited distributions do not count, although the cash can replace the paycheck dollars she contributes. Roth contribution income limits still apply.
• Converting her own IRA: She may use withdrawals to pay the tax on converting her own traditional IRA. Under A-9, the converted amount counts as income “for all purposes,” including Social Security taxation. That income is added to her inherited withdrawals for the year.
• Basis: Section 408(d)(2)(A) treats all of a person’s IRAs as one contract. Inherited basis is handled differently, however: a non-spouse heir cannot combine it with her own, and she must file separate Forms 8606.

When These Strategies Make Less Sense

An even yearly split works best when income is steady. If Dana plans to retire before year 10, taking more money in her lower-income years may cost less. If converting her own IRA would push her top dollars from 24% into 32%, the added tax could erase the benefit. If she has no earned income, Roth contributions are off the table. And if she needs cash immediately, setting aside extra money to cover conversion taxes may not be practical.

Her first step is to determine whether her father died before or after his required beginning date, because that decides whether annual withdrawals apply. After that, she can compare each year’s withdrawal plan with the IRS bracket thresholds in effect for that year.