Roth beneficiary distributions

Submitted by David Benson on Mon, 2020-05-25 22:11

I am the owner of a Roth IRA and am confused about the withdrawal period for my non-spousal beneficiaries.

IRS Pub 590B for 2019 returns is the latest edition available on the IRS Pub site. On page 35 under Roth IRAs “Generally, the entire interest in the Roth IRA must be distributed by the end on the fifth year after the year of the owner’s death unless the interest is payable to a designated beneficiary over the life expectancy of the designated beneficiary. See ‘When Must you Withdraw Assets’ in chapter 1.

Question – How does a designated beneficiary differ from the person I have named on the beneficiary form and, is the person I have named qualified to receive distributions over his/her lifetime ?



Submitted by Alan - IRA critic on Mon, 2020-05-25 23:02

  • The 2019 Pub 590 B does not reflect passage of the Secure Act late in 2019. Secure took effect on 1/1/2020. Under Secure, unless a beneficiary of yours is an “EDB”, they will be subject to a new 10 year rule and will not be able to use their life expectancy. That means the former “beneficiary stretch” has been seriously impaired. Your beneficiaries would NOT have annual RMDs, but would have to drain their inherited Roth IRA at the end of the 10 th year. For example, if you passed in 2028, their inherited Roth IRA would have to be drained by 12/31/2038. Since this is a ROTH IRA, there will be no need to manage the tax liability over those 10 years since the Roth distributions will be tax free. Therefore, they would be best served to leave the Roth untouched until the last year of the 10 year period and let it generate tax free earnings over the full 10 years.
  • Now suppose one of your beneficiaries is an eligible designated beneficiary (EDB). An EDB would include a disabled or chronically ill child of yours or any individual (perhaps a sibling) not more than 10 years younger than you. EDBs are not subject to the 10 year rule and can take annual beneficiary RMDs over their individual life expectancies. 
  • A designated beneficiary just means an individual as opposed to your estate, your trust, or a charity. An EDB is a special subset of designated beneficiaries, who will still be able to retain their life expectancy stretch and avoid the 10 year rule.
  • I have ignored spousal beneficiaries and minor children of yours who would also be EDBs, but probably do not apply to your situation.

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