Inherited IRA Roll Beneficieary
I am one of three named primary
beneficiaries from my fathers ROTH IRA. All three beneficiaries are his daughters. He recently passed.
Do I have to roll over the IRA directly into another Ira to maintain its status? Or can I roll over into cash and then decide?
Does the Roth aspect of the IRA require that it goes into a Roth IRa? I do not currently have a Roth.
There is a “second” wife but she is not a named beneficiary.
Thank you.
Heidi Q
I
Permalink Submitted by Alan - IRA critic on Mon, 2022-02-07 20:05
You must have the custodian retitle your share of the inherited Roth IRA and then transfer the balance into a separate inherited IRA for you. You can then sell the holdings within your inherited IRA and hold the cash (usually in MM or equivalent investment until you decide how to reinvest the cash. You will have to open an inherited Roth IRA (titled with you as beneficiary of (dad)). Then if you choose you can do a direct transfer of the inherited Roth to a new custodian, perhaps the one you use for your own investments. Note that any distribution you take cannot be rolled over to any account because you are a non spouse beneficiary. Funds can only be moved by direct trustee transfer between custodians if you wish to change. Finally, if he passed in 2021, you are subject to the 10 year rule unless you are disabled. Under the 10 year rule, you have no annual RMDs, but the account must be drained by 12/31/2031 (or 12/31/2032 if he passed this year). Meanwhile if you take distributions you will need to know if your inherited Roth is qualified or not. If you can locate some documentation that his first Roth contribution was prior to 2018, the inherited Roth is qualified and completely tax free because the 5 year holding period has been met. If you take a distribution prior to the 5 year holding period, you will have to dig up the info to report the distribution on Form 8606, and that data may be hard to find. Once the 5 year holding is completed, going back to the first year Dad contributed, your account is qualified, fully tax free, and you do not need to file Form 8606. Therefore, try to find a Form 5498 or a copy of an old Roth statement in his records for 2017 or prior and keep a copy. Same for your sisters. Otherwise, because the inherited Roth will be tax free and generate more tax free earnings, you may want to delay distributions until late in the 10 year period to generate more tax free gains.
Permalink Submitted by fairira on Mon, 2022-02-07 20:43
Alan-iracritic, I thought that one had 10 calendar years AFTER the year of inheritance to drain an inherited IRA or effectively 10 and a fraction years in all. IF that is correct, I would think the inherited IRA has to be drained by 12/31/2032 if the father passed away in 2021 (or 12/31/2033 if he passed this year).Thank you for your response and bless you for your many years of helpful information to tens if not hundreds of thousands of persons.
Permalink Submitted by Heidi Quinn on Tue, 2022-02-15 14:06
One follow up question: Can the Roth status remain intact if I exceed the income limits for a Roth?
Permalink Submitted by Alan - IRA critic on Tue, 2022-02-15 17:25
If you are referring to the inherited Roth IRA, it is not affected by your income. Neither is a Roth IRA that you own except that you cannot make new contributions to it in years that your modified AGI is too high.
Permalink Submitted by Alan - IRA critic on Mon, 2022-02-07 20:51
Yes, the 10 year period is composed of 10 full years starting in the year after the year of death. For a 2021 death, those 10 years are 2022-2031, so the inherited IRA must be drained by 12/31/2031. You were apparently not counting the years correctly.
Permalink Submitted by fairira on Tue, 2022-02-08 06:16
Thank you and of course you are correct. Some day I must learn how to count from 1 to 10. One would think I’d know that after having a Math major in college.