RMD for Inherited Roth IRA?
I’ll try to keep this concise:
Client X inherits a Roth IRA from her father November 2010. She is 48 years old.
The father opened this IRA a long time ago (20+ years), converted the entire account to a Roth in 2008 and made no further contributions until he died. He passed away October 2010. Does she need to take an RMD from this account before December 31st, 2011?
I have an article on “Inheriting a Roth IRA” and it states (for a non-spousal beneficiary) “If the deceased IRA owner had the Roth IRA for five years or longer, all distributions from the Roth IRA would be tax-free and penalty-free”. I’m not sure if the 5 year time frame relates to when the IRA was established or when it was converted to a Roth.
So basically, does she need to take an RMD from this account? Why or why not? If yes, how will I go about calculating this figure?
Thank you,
Permalink Submitted by Peter Lingane on Wed, 2011-09-07 14:46
Get a copy of Publication 590 from the IRS website (http://www.irs.gov). The first distribution is required by December 31, 2011. Distributions are not entirely tax free because the Roth IRA was established in 2008, less than five years ago. Distributions within five years of conversion are usually penalized but the penalty does not apply in this case because of the death exception. The method for determining the amount of each distribution is discussed on pp. 35 and 68. The amount is likely determined using the Single Life Expectancy shown in Table 1 of that publication.
Permalink Submitted by mk foss on Wed, 2011-09-07 17:30
A nonspouse beneficiary of a Roth IRA must begin taking RMDs by December 31 of the year following the death of the owner.
The RMDs are based on the life expectancy of the beneficiary – using the Single Life Table and the beneficiaries age in the year after the death. Pub 590 will give you the factor.
Since the Roth wasn’t in place for 5 years there is a potential for income, but I think it’s unlikely. The RMD (or any withdrawal) comes first from contributions of the Roth owner, then from conversions of the Roth owner and finally from earnings. If she takes just the minimum amount, she would need tremendous growth in the Roth before any earnings would come out in the 5-year period.