Roth inherited by spouse under age 59.5

Submitted by James Magno on Wed, 2022-10-26 21:37

Another CPA asked about alternatives for surviving spouse under age 59.5.
Husband dies at age 68.
Seems to me that wife should be careful about rolling the Roth to her name, ie treating it as her own.
If she does treat as her own, wouldnt the first in first out rules continue to apply and mitigate penalty if she takes a withdrawal before age 59.5?
Here is my question: in the case of a traditional IRA, I think that the surviving spouse can take as an inherited IRA and later opt to roll over to her own IRA. Not sure of logistics. That rule as I remember it required the surviving spouse to take no RMDs and to then roll over to her IRA by the time RMDS are required. So question is this: is there a rule that would allow surviving spouse to take as a inherited and then opt later to roll to her own- can Roth be handled that way?
Thanks
Jim



Submitted by Alan - IRA critic on Wed, 2022-10-26 23:19

  • If she does the spousal rollover to her own Roth, the holding period is the longer of either spouse’s Roth IRA, but she cannot use his age. Therefore, her pre 59.5 distributions would be non qualified and therefore taxable under the Roth IRA ordering rules. Any conversions done by husband in the last 5 years distributed under the ordering rules would incur the 10% recapture tax on the taxable portion of such conversions. Earnings come out last and would be subject to both tax and  penalty until her Roth became qualified. Therefore, tax and penalty free distributions she take prior to 59.5 are limited to the Roth basis in regular contributions, and conversions over 5 years. Conversions under 5 years would be distributed oldest first with taxable portion of each year first subject to penalty, then the non taxable portion of that year not subject to penalty.
  • The SS can title the Roth as an inherited Roth, and later assume ownership at anytime. She would have to start RMDs from an inherited Roth in the year deceased spouse would have reached 72, but election to assume ownership would stop the beneficiary RMDs in the year the election was made and thereafter.
  • As such her options are tricky before the time that assuming ownership would result in her Roth being qualified. 

Submitted by James Magno on Fri, 2022-10-28 12:16

Thank you! We are lucky to benefit from this forum and all that contribute

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