5 Year Wait to Withdraw from Roth – #2
It is my understanding that one cannot withdraw money from a Roth IRA tax free until that money has been in for 5 years. If withdrawn earlier, any appreciation will be taxed – as from a traditional IRA. Suppose the owner of a Roth passes away 2 years after funding, and the beneficiary is less than 59.5yr. Must the new owner wait an additional 5yrs before being able to make a tax free withdrawal, or are the previous 2yrs “credited”?
Permalink Submitted by Alan Spross on Thu, 2010-02-04 17:05
The previous two years count, so the holding period is the total between the owner’s holding time and that of the beneficiary. A spousal beneficiary can assume ownership and gets the longer of their own or decedent’s holding periods.
A non spouse beneficiary must take RMDs starting in the year after owner’s death. For these RMDs or other additional distributions, the ordering rules I mentioned in your other post will apply, ie the contributions can be distributed tax free. Once they are gone and earnings are distributed, the earnings are taxable until the 5 years of total holding periods has been met.