If the older person converts to Roth and then passes away, RMDs may be due. If the person has a surviving spouse, the spouse can rollover the Roth and further defer RMDs. If the beneficiary is someone other than the spouse, they are treated just like a person with a regular IRA who has not yet reached the required beginning date – the default method is life expectandy – the other choice is the 5-year rule. With life expectany – the beneficiary looks at the factor for their age in the year after the death to determine the peiod over which the RMDs are made. The beneficiary can always take more, but if they fail to take the minimum – a 50% penalty is imposed. Instead of life expectancy, they can cash out the entire Roth within the 5-year period that ends December 31 of the year containing the five-year anniversary of the death.

If the older person passed away before five years so that earnings may be taxable – the earnings are likely to still escape tax if the beneficiary uses the life expectancy method. With the 5-year rule, it’s possible that the beneficiary could withdraw some “earnings” before 5 years have elapsed measured by the year in which the conversion occurred.

• Flag as spam
• Log in to Reply