Passing Roth assets to future generations
Is it possible for a Roth IRA to be passed on down through the generations?
Example: grandparent, then to child, then to grandchild, etc?
I thought I read if it’s a non-spouse beneficiary then there are some withdrawal requirements over the beneficiaries lifetime?
Thank you,
Brian
Permalink Submitted by mk foss on Thu, 2010-08-05 20:56
A Roth IRA can only be passed to one future generation. If Dad has a Roth IRA and passes away and Mom is the beneficiary, no RMDs are required during Mom’s lifetime. If the children are named as the beneficiaries, they must begin RMDs the year after the death of the owner who passed away. They use their own life expectancies to calculate the RMDs. Instead of naming the children, the owner could name grandchildren. They would use their own life expectancies to calculate RMDs over their lifetime.
The RMDs would not be taxable, but failure to take them makes the beneficiary subject to a 50% penalty.
Permalink Submitted by tomd37 on Thu, 2010-08-05 21:15
Mary Kay, please enlighten me. The question was can a Roth IRA be passed down through the generations. As I view the rules, yes the IRA itself can be passed down indefinitely by the owners naming designated beneficiaries. However, the RMDs from a Roth IRA must commence when the receiving beneficiary is a non-spouse to the original (i.e., first) owner.
Husband dies and designates wife as beneficiary. She does not have to take RMDs when she becomes owner. However the non-spouse beneficiary she designates must start taking RMD’s the year following her death based on that person’s age in the first year of RMDs. All subsequent designated beneficiaries must that RMDs each year based on the appropriate factor minus one each year used by the first non-spouse beneficiary.
Am I correct or do I misunderstand the rules?
Permalink Submitted by Alan Spross on Thu, 2010-08-05 21:30
Tom, you are correct.
Any beneficiary can be named on the Roth IRA, eg a grandchild or even great grandchild, and as the first non spouse beneficiary, the RMDs would be based on the life expectancy of that beneficiary regardless of the premature death of that or other successor beneficiaries. So if an abnormal mortality rate among beneficiaries occurs, you could have a large number of successor beneficiaries, but the Roth funds cannot last longer than the non recalculated life expectancy of the first non spouse beneficiary. That results in a certain year after which the Roth will be drained no matter how many sucessor beneficiaries might have short periods of RMD distributions.