Distributions from Inherited Roth IRA
I understand that a Roth IRA must be distributed by the end of the fifth calendar year after the year of the owner’s death unless it is payable over the life expectany of the designated beneficiary. So if owner died in 2005, does the Roth need to be distributed by the end of 2010 or 2011. Thanks!
Permalink Submitted by Alan Spross on Thu, 2011-09-01 20:27
First, your post indicates that you are referring to a non spouse Roth beneficiary.
While the Roth owner is presumed to have passed prior to the RBD because there IS no RBD for a Roth IRA, it may still be possible for a designated beneficiary (not an estate) to preserve the life time stretch.
They would have to go back and calculate the correct RMD for 2006-2008 and for 2010 (RMDs were waived for 2009), and pay the 50% penalty on those 4 years of RMDs, and would then be allowed to take life time RMDs for 2011 and beyond. They could also request a waiver of the penalties, but that request would be a long shot.
OR… if they do not want to pay those penalties to preserve their stretch, they can still meet the 5 year rule by draining the entire account by 12/31/2011. The 5 years was extended by one year due to the 2009 RMD waiver. Since the Roth has obviously existed for over 5 years, it is now qualified and fully tax free.
Their decision would be affected by the size of the account, their age since it affects the size of the RMDs and therefore the excess accumulation penalty, and their need for the money much sooner than what lifetime RMDs would generate.
Permalink Submitted by Talia Pierluissi on Thu, 2011-09-01 20:40
Alan,
Thank you for your reply. I’m glad to hear this, particularly that the 5 years was extended by one year due to the 2009 RMD waiver. Have you seen anything from the IRS on this extension? If so, I’d love to have the source as a back up.
Permalink Submitted by Talia Pierluissi on Thu, 2011-09-01 20:47
Sorry — please disregard my last message. I found this in the 2009 publication on IRS website. Thanks again!