Inherited Roth IRA with no withdrawals by deceased owner
Same fact pattern as a previously indicated but with additional information that Mary did not take withdrawals from her ROTH
IRAs prior to her death in 2016.
Single person (Mary) died on May 1, 2016 born July 2, 1934 left, to Jane a friend, 3 Roth IRAs with a combined balance of
$100,000 as of 12/31/21.
Single person (Jane) not a relative of Mary, born Oct 1, 1945 inherited Mary’s Roth IRA’s and she took the RMD
in all those years after Mary’s death, except for year 2020 which was exempt from the RMD
1. Found out now that Mary while she was alive, had owned the ROTH IRA’s for at least 8 years, from 2009 to 2016, without
taking any withdrawals from those 3 Roth IRA’s
2. As previously noted Jane had planned to take from these inherited Roth IRA’s RMD in 2022 and beyond.
3. Because the discovery that Mary had not taken any ROTH withdrawals and had owned the ROTH IRA’s for more than
5 years before her death, does Jane now can avoid taking withdrawals from her inherited ROTH IRA’s from Mary in 2022 and beyond
4. If Jane does not have to take RMD in 2022 and beyond, is that going to look odd to the IRS that Mary does not take RMD in 2022 and beyond compared to that May did take RMD from these inherited ROTH IRA s in 2017 through 2019 and 2021.
5. If Jane does not have to take RMD in 2022 and beyond, could she take any amounts in future years, in case she needs the
funds for her economic situation in the future
Permalink Submitted by Alan - IRA critic on Tue, 2022-02-22 02:10
Since a Roth IRA has no RMDs for the owner, RMDs for the beneficiary must either be distributed over the life expectancy of that beneficiary or under the 5 year rule. Since Jane has not complied with either method, and because most IRAs default to life expectancy without specifying an election deadline, Jane can elect to either make up the late RMDs for 2017-2019 and 2021, and filel Form 5329 requesting the penalty waiver, or if she prefers she can take a full distribution by the end of 2022 and avoid filing any 5329 forms. Since the Roth is qualified, all distributions are tax free. The 5 year rule expires in 12/22 because the 2020 RMD waiver allows 2020 not to be counted. If Jane decides to restore the llfe expectancy stretch she will need to file those 5329 forms and make up the late RMDs before filing those forms.
Permalink Submitted by alberto vega on Tue, 2022-02-22 19:31
Sorry I did not explained it correctly. Jane did take distributions from the inherited Roth IRAs from 2017-2019 and 2021. Also found out Mary never took out distributions on these Roth IRAs during her lifetime. My questions are:1. Can Jane stop taking distributions from these inherited Roth IRAs in 2022.2. If she takes distributions in 2022 based on the new single life table, effective 1/1/22 what factor will she be using, Is it 12.2? 3. If she takes distributions in 2022, will the entire distribution be tax free? Will the “earnings” portion be also tax free or not?. If all earnings are tax free would she not report them at all in her tax return, or there is some form and line # she has to report them, even if tax free.4. Does Jane eventually has to take out all of the money in these 3 inherited ROTH IRAs; or her beneficiary would eventually inherit whatever money is left on these Roth IRAs
Permalink Submitted by Alan - IRA critic on Tue, 2022-02-22 21:29
It does not matter whether Mary took distributions or not. All distributions Jane takes are totally tax free and the only place she must report the distribution is on line 4a of Form 1040, nothing on 4b. Her divisor for 2022 is 12.2, and she must withdraw at least that amount from the Roth. If she lives long enough she wlll exhaust the inherited Roth, but if not her beneficiary will inherit what is left.
Permalink Submitted by alberto vega on Wed, 2022-02-23 02:29
Thank you very much for your answer to a complex topic. Just to be sure (pardon the redundacy), Jane in 2022,will have to take the 3 RMD ( calculated as 100,000 divided by 12.2, ) for these inherited Roth IRAs, but they will be income tax-free.
Permalink Submitted by Alan - IRA critic on Wed, 2022-02-23 02:43
Yes, all inherited Roth IRA distributions by Jane will be tax free, whenever taken. They only get reported on Form 1040, line 4a (not taxable). Form 8606 is not needed.