Can a Person Taking RMD From an Inherited IRA Open a New IRA?

by Leslie McClintock

There is no general prohibition taking required minimum distributions (RMDs) from an inherited individual retirement account (IRA) from contributing to a new IRA. There are, however, other conditions which you must meet to open or contribute to an IRA.

Qualifications

To open a traditional IRA, you must have earned taxable compensation during the tax year, and you can't be over the age of 70 1/2. The fact that you are taking distributions from an inherited IRA will not by itself disqualify you from contributing to a new IRA account. Pension and annuity income does not count as taxable compensation for this purpose, even though this income is taxable.

Income Restrictions

The Internal Revenue Service imposes income limits on your eligibility to make deductible contributions to an IRA. The limit on IRA contributions is $5,000 per year. If you are covered by an employer's plan, the IRS limits your ability to deduct contributions at an adjusted gross income (AGI) of $56,000, and withdraws it entirely if your income is over $66,000. For married couples, those limitations are $90,000 and $110,000, respectively. However, you can still make contributions on a non-deductible basis above those thresholds. More generous limits apply, however, if you are not covered by a retirement plan at work, and single taxpayers can deduct contributions at any income level.

Roth IRA Income Limits

You can contribute to a Roth IRA if you are married, or a qualifying widow or widower and your income is under $177,000. You can also contribute if you are single or a head of household and your income is $120,000 or less, or $10,000 if you are married, file separately, and live with your spouse.

RMDs and Rollover Contributions

Money that you must take out in a RMD can't be rolled over into another IRA account. You must take the RMD and pay taxes on the contribution. You cannot use IRA rollovers to avoid paying taxes on required minimum distributions.

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