Inherited Roth
I have a client who is inheriting part of a Roth IRA from his deceased mother. However, the beneficiary of the Roth was his mother’s trust, then it is to be distributed to him and his sister 50/50. Will my client be able to roll his portion into a Beneficiary Roth and maintain the tax-free benefit of the Roth? Or did naming the trust as the beneficiary destroy that?
Permalink Submitted by Alan - IRA critic on Mon, 2015-12-07 19:42
If the trust is qualified for look through treatment, the inherited Roth RMD will be based on the age of the oldest trust beneficiary as of 12/31 of the year following the year of mother’s death. If the trust is allowed to terminate, separate inherited Roth IRAs could be created, but the RMD calculation would remain based on the oldest beneficiary. The Roth could be stretched for several years and distributions would normally be tax free. The Roth becomes qualified at the end of 5 years from the year of the first Roth contribution, so it may already be qualified. If not, the 5 years continues to run beyond the mother’s death until 5 years is completed. Now, if the trust is NOT qualified for look through treatment (most are qualified), the 5 year rule will apply because Roth owners are always deemed to have passed prior to the required beginning date, since there is no beginning date for Roth owners.
Permalink Submitted by Michael Eastham on Tue, 2015-12-08 15:06
How do we determine if the Trust is qualified for look through?
Permalink Submitted by Alan - IRA critic on Tue, 2015-12-08 17:12
Refer to p 12 of IRS Pub 590 B, ask the attorney who drafted it, or submit it to the IRA custodian for review now to see if they consider it qualified. If not, it can still be re drafted to include the necessary provisions. Most trusts do qualify, but note that there is also a deadline after the IRA owner passes of 10/31 of the year following the year of owner’s death to submit trust info required by the IRA custodian.
Permalink Submitted by Bruce Steiner on Wed, 2015-12-09 00:12
How can his mother leave an IRA to her own trust? The beneficiary designation takes effect at her death, whereupon she can no longer be a beneficiary of a trust. Why would she create a trust, leave the Roth IRA to the trust, only to have the trust immediately distribute its assets? If she wants the Roth IRA to go to the children outright, she could have named the children as the beneficiaries. If she wants it to go to the children in trust, she could have named trusts for the children as the beneficiaries.