Inherited Roth IRA holding period

Submitted by Frank Petranka on Fri, 2019-12-20 14:42

For an inherited Roth IRA do you only inherit the earnings holding period? Will there be a 10% penalty on early withdrawal of conversions or earnings? Thank you.



Submitted by Alan - IRA critic on Fri, 2019-12-20 15:51

  • You inherit the holding period of the decedent and the inherited Roth holding period is the total years held by the decedent and the beneficiary. The beneficiary needs to determine if the first Roth contribution was at least 5 years before owner’s death. If so, the death of the owner makes the Roth fully qualified. If not, the beneficiary will add years until the Roth has met the 5 years combined between owner and beneficiary. Until the 5 years is met, any earnings still come out last, so everything except earnings is available tax free. 
  • There is never a 10% penalty on distributions from an inherited IRA. Post death distributions are coded T or Q for a Roth IRA. Code T means that the custodian does not know if the Roth has been held 5 years, and that will require the beneficiary to investigate tax or prior custodian records to come up with some documentation that an eligible contribution was made at least 5 years ago. If such documentation is found, then all beneficiary distributions are tax free and Form 8606 need not be completed. The gross distribution is shown on line 4a of Form 1040.

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