Inherited ROTH IRA
Client inherited Roth from her sister. Does she have to take a distribution each year? If so, is there a table to give me this information! Is there a penalty for not complying and how much is that penalty? Is it the same as RMD on traditional? The inheriting sister is 64 years of age.
Permalink Submitted by Alan Spross on Mon, 2011-11-14 21:58
A non spouse inheriting a Roth IRA but take RMDs in the same manner as they would with a traditional IRA. The table used is Table I, the single life expectancy table. But there is a difference on taxes, as her RMDs will probably be tax free. She needs to find out when her sister first contributed to a Roth IRA. If over 5 years ago, the Roth is fully qualified and tax free, but even if the 5 years is not yet complete the RMD will still likely be tax free because earnings come out last and her first few RMDs are highly unlikely to get to the earnings before the 5 year period is completed.
There is a 50% penalty of the amount of the RMD for not taking a required RMD on time. However, the IRS has been very lenient in waiving that penalty if the taxpayer makes up the back RMDs and then files FOrm 5329 for each year the RMD was missed asking that the penalty be waived for reasonable cause. See p 6 of the 5329 Inst for complete details.