Successor Inherited Roth IRA Distribution Requirements

Submitted by Delwin Hinkle on Fri, 2024-09-27 13:52

Spouse A’s mother died June 2019 at age 89, leaving to Spouse A (age 62 as of the mother’s death) a portion of a ROTH IRA that had been established more than 5 years prior.  A new account was established at the broker holding the Roth, styled as an Inherited Roth IRA.  Spouse A was advised that no RMD’s were required as long as the account was fully emptied by 12/31/2040.

Spouse A died September 2020, leaving to Spouse B (age 64 as of Spouse A’s death) the Inherited Roth IRA as that account’s sole beneficiary.

Is Spouse B required to take RMD at some point or does the 10 year rule still apply?



Submitted by Alan - IRA critic on Fri, 2024-09-27 18:17

Spouse A received incorrect advice, as annual RMDs were required unless Spouse A elected the 5 year rule, which likely did not happen. There were no beneficiary RMDs in 2020.

Spouse B is the successor beneficiary to A, and obligated to continue what would have been A’s RMD schedule starting in 2021, so there are 3 years of missed RMDs to make up (2021-2024). In addition, the 10 year rule applies and B must drain the inherited Roth by the end of 2030. A 5329 should be filed for 2021-2023 RMDs for each year to request that the penalty be waived.

 

Submitted by Delwin Hinkle on Sun, 2024-09-29 10:07

Alan, thank you for your prompt response.

I did have a typo in my original post.  Spouse A was advised that the account needed to be emptied by 12/31/2030.  I don’t think this makes any difference but wanted to be 100% clear.

In that vein, I’m understanding that an RMD based on A’s information should be calculated:

– based on 12/31/2021 balance that should have been withdrawn in 2022

– based on 12/31/2022 balance that should have been withdrawn in 2023

– based on 12/31/2023 balance that should be withdrawn before 12/31/2024

A separate 5329 should be prepared and filed for each year with a letter requesting waiver of the penalties.

All of 3 of these RMD’s can be withdrawn immediately in a single transaction.

The entire account must be drained by 12/31/2030.

Am I tracking correctly?

 

Thanks again.

Submitted by Alan - IRA critic on Sun, 2024-09-29 11:15

Actually, my prior post was incorrect, as “specified” beneficiary RMDs for 2021-2024 in this situation are waived by Notice 2024-35, which defines “specified RMDs” which are waived by the Notice until 2025. The following is copied from that Notice and includes your particular scenario:

“a beneficiary of an eligible designated beneficiary (including a designated
beneficiary who is treated as an eligible designated beneficiary pursuant to
§ 401(b)(5) of the SECURE Act) if: (1) the eligible designated beneficiary
died in 2020, 2021, 2022, or 2023, and (2) that eligible designated
beneficiary was using the lifetime or life expectancy payments exception
under § 401(a)(9)(B)(iii) of the Code”

Therefore, Spouse A was a designated beneficiary but was treated as an EDB post death and subject to LE RMDs due to mother passing prior to the Secure Act. Spouse A then passed in 2020 subject to the Secure Act and the 10 year rule. Spouse B falls under the above quoted exception for successor beneficiary annual RMDs in 2021-2024. The annual beneficiary RMDs using A’s schedule must resume in 2025-2029 with a total distribution in 2030.

Therefore, a 5329 need not be filed for any prior year, as these 2021-2024 beneficiary RMDs were waived by the Notice and do not have to be distributed.

Submitted by Delwin Hinkle on Sun, 2024-09-29 12:00

Great, thank you!

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