Bene Roth IRA rules

Submitted by Wendy Mommaerts on Fri, 2018-09-07 18:39

What are the rules to inheriting a Roth IRA:

Q1: Client inherited Roth from his dad (dad passed away 2018 age of 72 and has satisfied his 2018 RMD – dad has held his Roth for 14 yrs)
I’m assuming client would begin his RMDs in 2019 (under his life expectancy using the Single-life table) reducing by one each year after?

Q2: Client inherited his dad’s Roth through the estate (not named outright through the IRA)
Does our client have to distribute his bene Roth within 5yrs?

Q3: What happens if the estate is the beneficiary of the Roth IRA?

Q4: What happens if the dad passes prior to 70 1/2, does the client who inherits a Roth IRA have to follow the 5 year rule?



Submitted by Alan - IRA critic on Fri, 2018-09-07 19:15

  1. Dad would not have had RMDs as a Roth owner. The inherited Roth is fully qualified when inherited, but since client was not named as a designated beneficiary, the 5 year rule will apply because all deaths of a Roth owner are deemed to occur prior to the RBD  (since there is no RBD for a Roth).
  2. Having the estate inherit a Roth is often costlier than a TIRA since deaths are all prior to the RBD as indicated above.  The 5 rule applies.
  3. Under the 5 year rule, there is no particular annual RMD requirement for the client. The only requirement is that the inherited Roth be drained by 12/31/2023. Since all distributions will be tax free, client should have the executor transfer the Roth to an inherited Roth IRA of the client, and if possible delay all distributions until late 2023 since all gains will be tax free and not taking distributions will probably generate more tax free gains in the Roth over the next 5 years.

Submitted by Wendy Mommaerts on Fri, 2018-09-07 19:23

I misspoke on Q1…yes of course there are no RMDs on the original owners Roth IRA.  as stated in Q1, our client was named as beneficiary of the Roth so I am assuming he can use his life expectancy beginning in 2019?

Submitted by Alan - IRA critic on Fri, 2018-09-07 19:37

If client was named as the designated beneficiary of the Roth as opposed to the estate being the beneficiary, client can take life expectancy RMDs based on his age in 2019. He could also elect the 5 year rule if he wanted to, but that would only be advisable in unique situations.

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