Decedent ROTH IRA
My client died, owning regular and ROTH IRA’s. He was 70 years old, divorced, not re-married and didn’t take out any distributions. His 45 yr old son was beneficiary. What are the reg’s regarding ROTH’s? Is there RMD? If so, when does it start? Is it tax free? Please advise.
Thanks.
Permalink Submitted by Alan Spross on Tue, 2008-05-20 22:52
A non spouse inherited Roth IRA is handled like an inherited traditional IRA where the owner passed prior to the required beginning date. The son would be required to start RMDs separately from both of the inherited IRA types no later than 12/31 following the year of his father’s death.
The Roth RMDs would most likely be tax free because the regular and conversion contributions come out before the earnings. However, the earnings do not become tax free until after the 5th year from the year his father first opened his Roth IRA. The 5 years keeps running after his father died. Therefore, unless the son takes unusually large distributions and the Roth was opened shortly before the father died, all the son’s distributions will be tax free. This may require some record gathering in order to be able to properly report these distributions on Form 8606.
For both IRAs, if the IRA agreement requires the son to make an election regarding life expectancy distributions, he should be sure to make them in time and also to name his own successor beneficiaries. Note that it is possible for the father to be age 70 and still be beyond his required beginning date so you will need to look at the exact DOB of the client and determine if he passed prior to or after the RBD, which is 4/1 of the year following the year he turned 70.5.
Permalink Submitted by [email protected] on Wed, 2008-05-21 15:58
Similar issue but little different circumstances – What if the deceased is a brother of the beneficiary. Is the beneficiary brother required to draw RMD from his brother’s ROTH? The IRA was only opened about 6 months prior to death. Deceased brother was 28 and beneficiary brother is 31.
Permalink Submitted by Alan Spross on Thu, 2008-05-22 01:32
A sibling beneficiary is treated no differently than a child, as they both are non spouse beneficiaries. Different treatment of beneficiary types falls within 3 classes – spouse, non spouse individual, and non individual.
Non spouse beneficiaries must take RMDs, can change custodians only by direct transfer, and cannot contribute to or assume ownership of inherited IRAs of any type.