Roth IRA on – Spouse Beneficiary
How does the 5-year clock work upon a surviving spouse (sole beneficiary) inheriting a Roth IRA?
For example,
Deceased spouse, 74, died earlier this year (2022)
Surviving spouse, 66, 100% primary beneficiary
The surviving spouse has the following options:
I am trying to wrap my head around the 5-year clock in re: to each of these options.
1. She can roll it into her current Roth IRA (treat it as her own) – Does the surviving spouse get the longer of – Clock in her own (previously established Roth) or the inherited Roth?
2 She can create a new inherited Roth IRA -Does she continue the 5-year clock? Or does it start anew because its now an inherited IRA?
3. She can treat the inherited Roth as as her own – Again, how does the 5-year clock work? Does she get the benefit of the years her husband held the account ?
Unrelated to the Roth clock –
Is there a situation where a surviving spouse would be subject to RMDs from an inherited Roth IRA?
Permalink Submitted by Alan - IRA critic on Mon, 2022-02-14 19:25
Yes, the year of the first Roth contribution for either spouse starts the 5 year holding period.
If she maintains the inherited Roth, the 5 year holding period starts with the year of husband’s first Roth contribution. That holding period runs continuously while he owned and while she maintains it as inherited. But she will have to take inherited IRA RMDs starting in 2023 unless she assume ownership by the end of 2023.
Yes, the longer of either of their holding periods.
She is subject to inherited Roth IRA RMDs under the same rules as an inherited TIRA. If she misses one, she is then treated as the owner of the inherited Roth by default, which erases that RMD requirement.
Permalink Submitted by David Mertz on Mon, 2022-02-14 20:06
Regarding #2, since the account is a Roth IRA, meaning that the deceased spouse died before his RBD, can’t the surviving spouse elect the 10-year rule instead of life-expectancy RMDs, then assume ownership by the 10th year?
Regardless, at any age over 59½ there seems to be no reason for a surviving spouse not to assume ownership of the Roth IRA.
Permalink Submitted by ShipsnGiggles on Tue, 2022-02-15 12:55
assuming ownersship was to be my follow-up question. I too can’t see a reason why a suruviving spouse that is age 59.5 older would remain a beneficiary (and instead shold asume ownership).My understanding re: 10-year rule – if account owner dies before his/her RBD the beneficadry can choose the 10-year payout. What benefit would this serve the suruving spouse?
Permalink Submitted by Alan - IRA critic on Tue, 2022-02-15 13:50
Yes, since all Roth owners pass prior to RBD, the surviving spouse could opt out of the life expectancy RMDs they are entitled to as an EDB (eligible designated beneficiary) and into the 10 year rule, after which they could still assume ownership at anytime other than taking a distribution in year 10, which would be an RMD if they failed to assume ownership. If they did nothing and did not take the RMD in year 10, they would default to ownership if the sole beneficiary.
But as DMx indicated, there is no reason or advantage not to assume ownership after 59.5 even if the inherited Roth was held longer than their already owned Roth since they get the benefit of the longer holding period if they elect ownership. Prior to 59.5, maintaining the inherited Roth as such will eliminate any 10% penalty if earnings or conversions less than 5 years of age are distributed. Also, if under 59.5 but deceased spouse was over 72, because beneficiary RMDs would be required, electing the 10 year rule would eliminate those annual beneficiary RMDs, and the surviving spouse could still elect ownership in year 10.