Inherited Roth Ira – RMD’s and SECURES 10 Year Rule

Submitted by Robert Zalokar on Wed, 2021-06-30 19:00

I am an independent investment advisor. My question has to do with taking inherited Roth account RMD’s. I have a client that came to me with a Fidelity Roth-Ira BDA account containing funds he inherited from his son who passed away in 2020. Funds originally came from son’s employer 401k plan of which father was sole beneficiary. Upon son’s death, father chose to convert entire 401k inheritance to a Roth…hence, the current Roth Ira BDA account.

Father is not more than 10 years younger than decedent son, so I take it that he qualifies as an eligible designated beneficiary. Correct? If so, this means the father has 10 years before he has to distribute any of the funds ( but in total by end of 10 years), of this Roth BDA account, without having to be concerned with taking yearly RMD’s. Correct?

His Fidelity statement however indicates that he has a required 2021 distribution due this year, the first year after decedents passing. When I spoke with Fidelity about this, they gave me no direction and said I need to talk with a qualified tax pro. Okay, fair enough. I had only hoped they would have explained why they are choosing to show on client’s monthly statement that he has not yet taken his 2021 required distribution.

I think that my client can elect to use the 10 year rule instead of taking annual RMD’s. Can anyone confirm that i am seeing this correctly? If so, is there a special process my client has to follow to elect the 10 year rule over taking RMD’s? Thank you.



Submitted by Alan - IRA critic on Wed, 2021-06-30 19:38

Client (an EDB) inherited a traditional 401k plan from son and opted for a direct rollover to an inherited Roth IRA as allowed. DId son pass prior to his RBD?  If so, client can elect the 10 year rule rather than taking LE RMDs from the inherited Roth IRA.  Since the Roth is inherited, the 5 year holding period for qualified distributions starts at the time of the direct rollover to the inherited Roth IRA, but when the inherited Roth was created it was 100% conversion basis, which can be distributed tax free up to the amount of the direct rollover. Father could advise the Roth custodian that he is electing the 10 year rule (if eligible) up to year end 2021, but is his age so advanced that this is an advantage v. LE?

Submitted by Robert Zalokar on Wed, 2021-06-30 22:11

Thank you for your helpful response, Alan. Yes, the son did pass prior to his RBD. So, client can elect the 10 year rule rather than taking LE RMDs from the inherited Roth IRA.  I will have father reach out to Fidelity to indicate his choice to use the 10 Year Rule instead of taking RMD’s. You also mention that when the inherited Roth was created it was 100% conversion basis, which means it can be distributed tax free up to the amount of the direct rollover. It is my understanding that all Roth distributions will be tax free, both basis and earnings.  

Submitted by Alan - IRA critic on Wed, 2021-06-30 22:19

Agree, except that the earnings in the inherited Roth will not be qualified for the first 5 years, since the conversion was the first year a Roth contribution was made. There was no owned Roth previously. But such earnings would come out last under the ordering rules. Therefore, to avoid any taxable income, father would have to limit Roth distributions in the first 5 years to the converted amount, but that still gives him tax free access to the bulk of the balance.

Submitted by Robert Zalokar on Wed, 2021-06-30 23:01

Excellent point. I understand,  thank you again.

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