Beneficiary Roth IRA

Submitted by Doug Nelson, CFP on Tue, 2023-08-01 14:02

Sisters are beneficiaries of deceased mother’s annuity Roth IRAs. Mother passed away July 2022. Provider says that since it has been more than one year, the only options available to beneficiaries is to Five Year Deferral or Lump Sum. They state that rollover to Beneficiary Roth IRA is no longer an option.

Is this accurate?

Does the 60-day rollover options apply if they take the money lump-sum then direct it to Beneficiary Roth IRAs?



Submitted by David Mertz on Tue, 2023-08-01 15:36

  • A 60-day rollover is and never has been an option for a non-spouse beneficiary.  For a non-spouse beneficiary of an IRA the only option other than a lump-sum payout is a nonreportable trustee-to-trustee transfer to a beneficiary IRA, never distribution and rollover.
  • As far as statutory RMDs are concerned, the sisters are subject to the 10-year rule with no annual RMDs.
  • There is no statutory or regulatory limitation on the timing of splitting this IRA into beneficiary IRAs.  Any additional requirements that the provider is putting on the method of distribution is something that should be present in the annuity IRA agreement in effect at the time of the mother’s death.

Submitted by Alan - IRA critic on Tue, 2023-08-01 15:42

  • A non spouse beneficiary is never eligible for a 60 day rollover. Funds can only be moved by direct transfer. Therefore, any actual distributions should be resisted until this decision is appealed. The insurance company may be incorrectly treating this Roth IRA as a NQ annuity since a Roth IRA is funded with post tax money. Under IRS RMD rules, these sisters are subject to the 10 year rule with no annual RMDs, but the insurance company can legally apply more restrictive distribution rules including a refusal to create separate inherited Roth IRA accounts for each sister. I suggest that the sisters request this decision be reviewed by senior staff, as this company probably sees very few annuities in Roth IRAs. They should treat this as any other qualified annuity.
  • Again, the company can legally apply more restrictive distribution rules than the IRS RMD rules, which in this case is the 10 year rule. With an inherited Roth IRA the Roth distribution tax rules apply, and while the 5 year holding period was probably met by the parent meaning that all distributions are tax free, the sisters may want to leave the inherited Roth in place as separate inherited Roth annuities to generate more tax free growth over the allowed 10 years. To the extent the company is applying NQ annuity beneficiary restrictions to this account the implications are negative. Refusal to create separate inherited Roth IRA annuity accounts for each sister will also create issues.

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