Roth IRA death benefits
I have a client who recently passed away and she had a Roth IRA annuity that has been in force for over 5 years. She had her son and daughter as beneficiaries so will the death benefit be tax free to the beneficiaries?
Thank you
Permalink Submitted by Alan - IRA critic on Sat, 2021-11-20 23:09
Yes, distributions including inherited Roth RMDs will be tax free. The insurance company will have to provide the RMD amount for 2022 and if there are enough fringe benefits remaining after paying the death benefit it might be based on an amount that is higher than the year end 2021 cash value.
Permalink Submitted by Kenny Kittrell on Sun, 2021-11-21 23:09
Thank you for your reply, the beneficiaries are wanting to receive a lump sum of the Roth IRA instead of taking distributions, will the lump sum amount still be tax-free?
Permalink Submitted by Alan - IRA critic on Mon, 2021-11-22 00:42
Yes, but it is not wise to take a lump sum distribution when an inherited Roth account could likely be stretched up to 10 years to generate tax free gains until distributed.
Permalink Submitted by Kenny Kittrell on Mon, 2021-11-22 01:01
In the case the beneficiary is going to use the proceeds to fund a life insurance policy in which earnings are still growing tax-deferred and can be accessed tax-free. The other benefit is the leverage of tax free death benefit over the Roth IRA in case of premature death plus having the option of using the higher death benefit for any future long term care needs.