ROTH IRA Bene w/o Earned Income

Submitted by Kirk Halveland on Wed, 2018-01-03 18:34

Bene is currently retired and has zero earned income as she is currently retired. Her age is 57.
Can she take on deceased spouses ROTH IRA account in a new ROTH IRA account in her name or does she have to open a Bene ROTH IRA?
If so, does she start taking distributions the following year after death in the bene ROTH IRA?
Thank you for your time to answer.
Regards,
Kirk



Submitted by Alan - IRA critic on Wed, 2018-01-03 20:42

She can either assume ownership of the Roth or maintain it as an inherited Roth. Spousal inherited Roth rules are tricky, so she needs to make the correct decision since assuming ownership is irreversible. Does she already have her own Roth account and if so, what year was her first contribution?  What year did deceased spouse make their first Roth contribution? How long until the deceased spouse would have been 70.5? If she continues as beneficiary her first beneficiary RMD would not be due until deceased spouse would have reached 70.5.

Submitted by Kirk Halveland on Wed, 2018-01-03 20:57

I’m sure glad I asked. Thank you!She currently does not have a RIRA so she would open a new account. Deceased spouse made his first contribution in 2009. Decease would have turned 70.5 in 2034 (16 years)I’m assuming she could make contributions to her new RIRA if she starts to earn income. She’s considering going back to work.Thanks Alan! 

Submitted by Alan - IRA critic on Wed, 2018-01-03 21:48

  • Yes, she can make new Roth contributions once she has earned income. It would be safer for her to open a new Roth IRA if she wants to do that and leave the inherited Roth in inherited form until she reaches 59.5. If she needs money from the inherited Roth before then, any distribution will be tax free because the inherited Roth is qualified, and no RMDs are required from it for several years. 
  • If she assumes ownership of the inherited Roth she DOES get credit for meeting the 5 years (2009 first contribution), but as the owner (instead of beneficiary), any distribution from her is non qualified until she reaches 59.5. That means that if any earnings are distributed, they would be taxable and subject to penalty. At 59.5 the owned Roth would become qualified and fully tax free. That is why it is safer to not assume ownership of the inherited Roth, contribute directly to it, or roll it over into her new Roth until she reaches 59.5. While a rollover would allow her to only have one account, the risk is that she would distribute earnings before reaching 59.5 and incur tax and penalty, and would also have to file an 8606. So the trade off is simplicity vs. safety. Once she reaches 59.5, she should combine them as there is no downside to doing so at that point.

Submitted by Kirk Halveland on Wed, 2018-01-03 22:58

Thank you Alan. You’re an invaluable resource!Kirk

Add new comment

Log in or register to post comments