Roth IRA Stretch
Please give me the options a child has when stretching their parent’s Roth IRA (Ie: lump sum, 5 year, over life expectancy). There has been some talk lately that it will be taxable to the kids. I didn’t think so, but could be wrong. Thanks, Julie
Permalink Submitted by Alan Spross on Thu, 2010-01-21 19:47
The beneficiary can take RMDs over their own life expectancy, but of course can also take out higher amounts.
The only taxation would occur if the beneficiary distributions were so high that earnings, which come out last, were distributed before the Roth satisfied the 5 year holding requirement that started in the first year that the parent contributed to a Roth IRA. So in a normal situation, a young beneficiary taking only RMD amounts would not incur any tax.
One exception to that would occur if the parent had already taken out their own contributions and all that was left were earnings when the parent passed. In that rare situtation, the child’s small RMD would be composed of earnings since there was nothing else left in the account.
The 5 year holding period starts with the parent’s first Roth contribution and continues past the parent’s death to include the years the beneficiary controls the Roth.