Inherited Roth IRA (non spouse)
IF you are a non spouse beneficiary of a Roth IRA – I know you have to take RMDs hopefully over your lifetime. My question is are all the RMDs tax free? I have read that only the original amount inherited is tax free and the growth on that amount is taxed as ordinary income – is this so? if so how do you determine when you start taking taxable distributions – after all of the original amount has been disbursed or a “creme in the coffee” situation?
Permalink Submitted by Edward Czapor on Fri, 2008-09-19 21:31
If the decedent’s Roth was established for at least 5 yrs., then all distributions are qualified and tax free. If less than 5 yrs., the established holding period transfers to the inheritor. In this situation the Roth basis due to contributions and conversions is considered withdrawn first tax free. Any earnings would be taxed if withdrawn before the combined 5 yr. holding period. If withdrawals were limited to RMD’s, it is unlikely that any taxes would be due. And of course there are no penalties because of the death exception.
ED C.