Inheriting Roth IRA where Rev Trust is Beneficiary
Decedent passed away and had a Roth IRA. The beneficiary of the Roth is a Revocable Living Trust. The decedent held the Roth IRA for over 5 years. The beneficiaries of the Rev Trust are the decedent’s adult children.
If the full balance of the Roth IRA is distributed, is it correct that the proceeds would not be taxable to the beneficiaries of the trust (adult children of the decedent)? Anything to consider since the beneficiary is effectively a Trust and not the individuals themselves (even though they will ultimately receive the funds)?
Does the 10 year rule from the Secure Act apply to Inherited Roth IRAs? Does this mean the beneficiaries do not have the option to take RMDs over their life expectancies and must withdraw their respective balances within 10 years?
Permalink Submitted by Alan - IRA critic on Fri, 2022-03-25 00:15
The RLT becomes irrevocable upon decedent’s death, correct? If not, the trust is not qualified and must be treated as a non individual beneficiary and the 5 year rule will apply for RMDs, even though they will be non taxable. If the trust becomes irrevocable and is otherwise qualified for look through, then the 10 year rule will apply for Roth IRA distributions with no annual RMDs.
Permalink Submitted by Roselyn Siino on Mon, 2022-03-28 17:38
I believe the RLT becomes irrevocable upon decedent’s death. If it doesn’t become irrevocable, which 5 year rule are you referring to? Is it the one which says that assets must be completely distributed by 12/31 of the 5th year anniversary of the death? If the trust is irrevocable, then the SECURE Act says the assets must be distributed within 10 years, correct?And the assets would not be subject to taxation either way, since it’s a Roth IRA that was held for more than 5 years, is that correct? Thanks!
Permalink Submitted by Bruce Steiner on Sun, 2022-04-10 21:44
If the grantor revokes it after his/her death, we won’t know about. So it’s effectively irrevocable.
Permalink Submitted by Alan - IRA critic on Mon, 2022-03-28 18:13
If the trust does not become irrvocable, it will not be qualified and the 5 year rule applies. For a Roth IRA subject to the 5 year rule, the inherited Roth must be drained by the end of the 5th year following the year owner passed. However, there are other requirements for a trust to be qualified in addition to just becoming irrevocable, therefore being irrevocable does not necessarily qualify the trust. If the trust meets all requirements for qualification, then most inherited Roth IRAs must be distributed at the end of the 10 th year, but if the trust beneficiary is disabled or chronically ill, or not more than 10 years younger than the owner, distributions might be made over the LE of the trust beneficiary. All such distributions from an inherited Roth IRA will be non taxable.
Permalink Submitted by Roselyn Siino on Mon, 2022-03-28 18:23
Very helpful, thank you!