Roth RMDs
My client’s step father died in 2020, leaving his Roth IRA to my 55 year-old client. At the time of step father’s death, he had only had the Roth open for one year, meaning that the five-year rule still has not been satisfied. Since the death occurred after 2019, I believe my client can follow the ten-year rule and let the Roth grow tax deferred until the end of that period. If I’m wrong about this, please set me straight.
I wonder how this would have been treated under the old (pre-SECURE Act) rules. Wouldn’t the heir have to begin RMDs based on his or his step father’s life expectancy, depending on step father’s RBD? If so, would he have been penalized for not having met the five-year rule, or would the first years’ distributions be OK since it would likely come from the after-tax contributions?
Permalink Submitted by Alan - IRA critic on Wed, 2022-03-23 15:48
You are correct. Client can wait until the 5 year Roth holding period is complete, and then the inherited Roth will be qualified and tax free. While the 10 year rule applies (account drained by 12/31/2030), because step father passed prior to RBD, there are no annual RMDs due before year 10.
Had step father passed pre Secure, client would have had to take annual LE RMDs based on client’s age, since a Roth has no RBD for the owner. In almost all such cases, the non qualified Roth IRA ordering rules would have resulted in the first few RMDs being non taxable, coming from step father’s regular contributions or conversions. Client’s inherited Roth would have become qualified before he had to withdraw any gains in the account.