inheirited non-spousal roth ira
I inheirited an Roth IRA from my father in 2010. At the time I inheirited it, the account was in all cash with a discount broker. I have done a trustee to trustee transfer of the assets to another broker. I have also bought and sold stocks in the account so it is no longer all cash. My father was 87 when he died and the Roth Ira had been established in 1998. I intend to draw it down over my lifetime and will take an age appropriate distribution some time this year. Am I doing things in accordance with IRS rules and regulations. Thanks, Shep
Permalink Submitted by Alan Spross on Wed, 2011-01-05 22:03
Shep,
Sounds like you are on target. You need to take annual RMDs, the first one for 2011 no later than 12/31/2011 using the 12/31/2010 account balance and the age you will be by year end. Then reduce that divisor by 1.0 for each successive year thereafter. SInce the inherited Roth is well over 5 years old, it is fully qualified and all distributions you take will be tax free. You do not even need to use an 8606 to report your distributions. The gross amount will go on line 15a of Form 1040 and nothing goes on 15b since it is tax free.
Just be sure you continue to use T to T transfers if you move the account since you CANNOT do an indirect rollover on a non spouse inherited IRA. Be sure to name your own successor beneficiary on the account as well.
Permalink Submitted by Larry Shepherd on Thu, 2011-01-06 01:26
Thanks for your prompt response and the helpful info contained in it. It occurred to me that possibly the fees incurred in connection with buying and selling stocks may have to be taken into consideration when taking out the annual distribution. Are they a factor? Thanks again. Shep
Permalink Submitted by Alan Spross on Thu, 2011-01-06 01:41
No, they are not a consideration. Commissions are just taken out of the cash in the Roth and reduce your account balance, but are not considered a distribution.
If there is an IRA administration fee, some firms will give you a choice of taking it out of the account or will bill you separately. If you pay it separately, it may qualify for a misc itemized deduction, but the 2% of AGI limit applies and you must be able to itemize. But even if you can’t itemize, it will preserve your Roth assets that are generating tax free income. Some brokerage firms also offer what are known as “wrap accounts” where the trading costs (commissions), advisory fees and administrative fees are bundled together as a % of assets. These can be treated like the administrative fees mentioned above so in that case your commission cost could be paid with separate funds with the possiblity of a deduction.
But none of the above affects your RMD other than the fact that the more of these costs that are paid with outside funds, the longer your Roth will last and the balance will be higher. Of course, a higher balance also means that your RMD will be higher as well. However, since your RMD and any other distributions are tax free and the RMD is a small % of the prior year end balance, you would be farther ahead if you paid those costs from outside funds instead of having them deduct them directly from the IRA.