BENE ROTH IRA DISTRIBUTIONS
A client of mine inherited a ROTH IRA from a non-spouse in 2015. She takes her annual RMD but the Custodian asks every year if the original ROTH IRA was opened at least 5 years. It was, so the point is moot. My question is what if the original ROTH was only opened for 3 years and she had inherited it? How does, if at all, does the 5-year ruly apply there?
Permalink Submitted by Alan - IRA critic on Tue, 2021-09-14 16:07
The 5 year holding period runs consecutively for the owner’s lifetime and continues while held by the beneficiary. Had the original Roth been held for 3 years, after 2 years as a beneficiary Roth the 5 year holding period would be met. Meanwhile, if the beneficiary limited withdrawals to RMDs the first two years, there would usually be enough Roth basis to avoid taxes, but the beneficiary would have to know the Roth basis to report those two RMDs on Form 8606. Once the 5 years has been met, Form 8606 is no longer needed, and that situation applies to client.