Getting inherited IRAs into "normal" tax-deferred accounts

My wife has an inherited Roth IRA and an inherited
traditional IRA. She obviously has to take RMDs
from both. This is annoying for two reasons:
1) In case of the inherited trad IRA, the RMD is
taxable income.
2) In both cases, money is being forced out of
the tax-deferred/tax-free umbrella.
The following strategy has occured to me to get these accounts
into "normal" tax-deferred/tax-free accounts not subject to
current RMDs. I'm curious if there's some downside I'm
For the inherited Roth -- simply use distributions from the
inherited Roth to fund contributions to her Roth (the earned
income exists to cover this) rather than making the contribution
from "outside" funds. For example, instead of making a $5,000
Roth contrib from checking account monies, take $5,000 out of the
inherited Roth and use that to fund the Roth contribution. The
downside I see to this is that one isn't actually increasing the
Roth balance -- you're only "moving" it from a Roth subject to
RMDs to one that isn't subject to RMDs. The upside, as mentioned
before, is that once the "move" is complete the RMDs are gone and
you're no longer having money forced out of the Roth umbrella.
For the inherited trad IRA -- this takes advantage of the fact
that she has self-employment income and an existing solo 401(k).
The idea would be that in years where the allowable solo 401(k)
contribution is more than what cashflow/circumstances would
allow, take a distribution from the inherited IRA and use that to
fund a solo 401(k) contribution. Since both the distribution and
the deduction are above the line, this will have no tax effect at
all. However, over time it'll get the funds into a tax-deferred
account not subject to RMDs until age 70.5. As described I see
no downside to this scenario since it was assumed it would only
happen when the allowable contribution is more than what would
have been made even in the absence of the strategy. For example,
say that in a given year SE income is such that the allowable
solo 401(k) contribution is $23,000 but for cashflow/whatever
reasons a contribution of only $7,000 is possible. Then, make
the $7,000 contribution from "outside funds" but also take
$16,000 from the inherited IRA to fund the full $23,000 allowable
What do you think?
Reply to
Rich Carreiro
I think you are mixing issues. This is human nature. For example, people will treat a $100 cash birthday gift differently than, say, a $100 bonus from work, or $100 in regular income. She can make those deposit to both her own Roth and her own 401(k) independent of those RMDs. If the proposed mental accounting makes her or you feel better about the process, that's fine.
On a side note, have you fully analyzed the Roth decision? You sure your retirement bracket with be high enough you prefer to pay current marginal rate and put post tax money into Roth?
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