Lump Sum or distributions based on life expectancy?
My clients has been advised to convert her traditional IRA to a Roth IRA over 6 years. Let’s assume she dies after 10 years. Are her children (beneficiaries) able to take the IRA in a lump sum tax free? And I assume that any earnings or gains are aslo tax free? Or is it mandatory that they take distributions over their lifetimes or based on their life expectancy?
Permalink Submitted by Anonymous (not verified) on Tue, 2010-11-09 18:37
After the 5 years the whole account is tax-free. The benes must take out RMDs under the LE rule, even though they owe no taxes on the distributions. Assuming these are children, the account can continue to grow tax-free until the RMDs deplete the account – could be 20-30 years depending on the ages.
pko
Permalink Submitted by Edward Dinaro on Tue, 2010-11-09 19:26
Thanks PKO- so therefore a lump sum is NOT allowed by the IRS on the inherited ROTH?
Permalink Submitted by Anonymous (not verified) on Tue, 2010-11-09 19:36
Yes it is. I was just giving you the slowest (minimum) payout requirement. The benes can take out all of it anytime.
pko
Permalink Submitted by Edward Dinaro on Tue, 2010-11-09 19:41
PKO- Thank you very much!