Inherited Roth IRA

Submitted by Howard RosenblaTT on Tue, 2017-11-07 20:42

I have a client who inherited a ROTH IRA from her father. Unfortunately her father did not survive the required 5 years after rolling over his regular IRA into a ROTH and paying taxes on said rollover.

Merrill Lynch is the broker of record and when asked if (a) she had to take a distribution this year, year of his demise, they said they could not answer that nor could they provide how she would be able to determine the amount of income she would have to report if she did take a distribution before 12-31-17.

Her husband said he thought she should withdraw all of the IRA within 5 years of his demise.

I cannot find a regulation that provides a guidance on this question, beyond the 5 year rule for withdrawals.



Submitted by Alan - IRA critic on Tue, 2017-11-07 22:20

  • There is no distribution required in the year of father’s death because as a Roth owner there were no RMDs. Beneficiary RMDs must start by the end of 2018, using the 12/31/2017 balance to calculate the 2018 RMD.
  • The inherited Roth does not become qualified until the end of the 5 th year from the year her father first contributed, whether the contribution was a regular contribution or a conversion in this case. Before that, all contributions made come up before any earnings, so unless client takes a very large distribution, her RMDs will consist of the converted money and will be non taxable for a couple years and then the Roth will become qualified. However, she must file an 8606 to report her RMDs until the 5 years is complete. The 5 years is always complete on Jan 1st of year 6. 
  • Since the inherited Roth will continue to generate tax free earnings, she should plan to take life expectancy distributions unless she goes through other savings and needs the money. Of course, she can always take out more than the RMD in any year if need be. While she could elect to use the 5 year rule, that is usually not a good plan.
  • Rules describing the above are found in IRS Reg 1.408A-6 – Roth distributions

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