Permalink Submitted by Alan - IRA critic on Wed, 2019-08-21 15:19
Usually it will be tax free. Distributions from an inherited Roth 401k are tax free as long as 5 years have passed from the year of the first Roth 401k contribution made by the decedent. At that point the inherited Roth is qualified. Prior to that time, distributions are pro rated between principal (basis) and earnings in the account with the earnings portion being taxable because the inherited Roth is still non qualified. Prior to the 5 year period being completed (measured over the period of both owner and beneficiary maintenance), the beneficiary might consider a direct rollover to an inherited Roth IRA where the RMDs will come out under Roth IRA ordering rules in which the Roth basis comes out first. That would avoid taxes on earnings in the vast majority of cases when life expectancy RMDs are being used.
Permalink Submitted by Alan - IRA critic on Wed, 2019-08-21 15:19
Usually it will be tax free. Distributions from an inherited Roth 401k are tax free as long as 5 years have passed from the year of the first Roth 401k contribution made by the decedent. At that point the inherited Roth is qualified. Prior to that time, distributions are pro rated between principal (basis) and earnings in the account with the earnings portion being taxable because the inherited Roth is still non qualified. Prior to the 5 year period being completed (measured over the period of both owner and beneficiary maintenance), the beneficiary might consider a direct rollover to an inherited Roth IRA where the RMDs will come out under Roth IRA ordering rules in which the Roth basis comes out first. That would avoid taxes on earnings in the vast majority of cases when life expectancy RMDs are being used.