Inherited ROth IRA
My mother had a rather large ROTH IRA which i was the beneficiary of. I was told that i did not have to take distributions from it as she had already paid the tax on it during a conversion years before. I didnt actually take possession of the account until 2020 due to the fact that there was a major audit and for some reason i was advised not to until the audit was done.
The real question i have is: I now have taken possession of the IRA in the form of a ROTH inherited IRA in my name. My mother died in 2016. I took the acct over in 2020. Am i correct in assuming that because this is a ROTH and there are no RMDs – i dont have to do anything with the account?
Thx
Permalink Submitted by Alan - IRA critic on Mon, 2021-05-24 22:47
Not correct. A Roth IRA inherited by a non spouse is subject to RMDs. Normally, you would have had the inherited Roth retitled no later than 2017 and begun beneficiary RMDs by the end of 2017. You will have to check the beneficiary clause to determine if this delay triggered the 5 year rule or not. If it did, you must drain the inherited Roth IRA by the end of 2022. If not, then you need to determine what your annual RMDs would have been for 2017-2019 and for this year, request a distribution equal to those RMDs, and file Form 5329 for the first 3 years to request the penalty be waived. Whoever was providing the advice about RMDs is totally incorrect, and I would not request any more guidance from that individual. If you want to save your life expectancy stretch, you need the year end balance for 2016 and beyond in order to calculate your annual RMD. Again, check the beneficiary clause regarding RMDs to make sure this is possible. At least any distributions you do take will be tax free since the Roth has obviously met the 5 year aging requirement.
Permalink Submitted by Matthew Morea on Tue, 2021-05-25 23:29
Would you be able to tell me what the 5 year rule is? Do you think i have to pull all of the proceeds out end of 2022?
Permalink Submitted by Alan - IRA critic on Wed, 2021-05-26 00:54
Yes, the inherited Roth must be drained by the end of 2022 if the beneficiary clause indicates that it applies if no election to take life expectancy RMDs is made by the end of the year following the year of death. You did not make such an election. I do not know what this clause states, you will have to determine what it says, or if you do not have a copy of the IRA beneficiary clause, you can ask the custodian to send you a copy or you can ask them what the clause says. It is very possible that you can avoid the 5 year year rule. Is the IRA custodian a large custodian like Vanguard, Fidelity, or Schwab?