Roth IRA distributions to children after owners death
Husband converted IRA to Roth IRA that was established over 5 years ago. Husband passed away in 2019 at the age of 75 and wife rolled over Roth IRA to her name, also age 75. Wife passes away in 2020. Wife’s primary beneficiary is a trust that meets all 3 criteria of a look through trust. Do the earnings of the Roth IRA meet the criteria of the 5-year holding rule and are tax free? In other words, is the account assumed to have been held 5 years, or because it was moved into wife’s name and only held in her name for less than 1 year, do they become taxable?
Permalink Submitted by David Mertz on Sat, 2020-12-19 21:37
Yes, the 5-year holding period for qualified distributions has been met. In this case, the 5-year holding period began on January 1 of the year for which Husband (or wife, if she had another Roth IRA established earlier) first made a Roth IRA contribution. The fact that less than one year had passed since wife had inherited the Roth IRA from Husband is irrelevant.
Permalink Submitted by Alan - IRA critic on Sat, 2020-12-19 23:29
With respect to future distribution requirements for the Roth IRA, there are 4 requirements to be met for a trust to qualify for look through. Perhaps the one not being considered is the requirement to provide the trust information to the Roth custodian, for which the deadline is 10/31/2021. If the trust is not qualified the 5 year rule will apply to the trust, but if qualified the 10 year rule will apply in most cases.