Distribution rules for Roth IRAs left to conduit trusts

Submitted by Gayle Smith on Tue, 2022-12-06 05:47

Client with a disabled spouse wants to name a trust as beneficiary of both traditional and Roth IRA accounts. The trust would have conduit language, provide for the spouse during his remaining lifetime, then provide for their adult children. I understand that the spouse would be an EDB for the traditional IRA; “stretched” RMDs would be available during his lifetime, then the 10 year rule would apply with regard to the adult children. What are the options for the Roth IRA? Would the spouse be required to receive Roth distributions during his lifetime or could the account remain untouched as it might with a spousal rollover? What about the distribution timeline after he dies?



Submitted by David Mertz on Tue, 2022-12-06 13:33

  • Distributions are not required from the Roth IRA while the participant is alive.
  • Under the proposed regulations, the distribution requirements for an inherited Roth IRA are the same as for an inherited traditional IRA except that, unlike an inherited traditional IRA where under the 10-year rule annual RMDs are required if the participant dies after the participant’s RBD for RMDs, there are never annual RMDs under the 10-year rule because with respect to a Roth IRA the participant is always treated as dying before the participant’s RBD.

Submitted by Gayle Smith on Tue, 2022-12-06 14:57

Thank you, but your response doesn’t address my actual question. I’m looking for insight into Roth IRAs that are left to trusts. I’ve been told by a very qualified attorney that by naming the trust as beneficiary, even when the sole beneficiary is the spouse, the ability to delay withdrawals indefinitely is lost, and that the 10 year timeline would prevail. This would make it more difficult to protect a disabled spouse who isn’t able to manage his/her own financial matters. I’m just wondering if anyone has explored this, since the Secure Act is so new….

Submitted by David Mertz on Tue, 2022-12-06 17:09

I’m not sure what question was not addressed by my reply.  While the spouse is alive, the distribution requirements from a Roth IRA maintained as an inherited Roth IRA for the benefit of the trust are the same as for the traditional IRA, so the attorney is correct that distributions are not delayed indefinitely.  Are you asking about the possibility of assigning the Roth IRA out of the trust so that the spouse can assume ownership, in which case the spouse would not be required to take RMDs from the Roth IRA after doing so, or perhaps making distributions from the inherited Roth IRA in excess of the inherited Roth IRA’s RMD and rolling over those excess distributions to the spouse’s own Roth IRA?  Of course any funds in the spouse’s own Roth IRA are not under the control of the trust.

Submitted by Alan - IRA critic on Wed, 2022-12-07 02:16

  • If a Roth is left to a qualified conduit trust for a spouse, the spouse would be treated as the sole designated beneficiary of the Roth IRA. RMDs would be delayed until the year the deceased spouse would have reached 72, then beneficiary RMDs would be based on the age of the conduit beneficiary with a recalculated divisor for the spouse. Most likely the Roth IRA would be qualified (inherited and held over 5 years) before any distributions exceeded the Roth basis, and would therefore be non taxable. When the spouse passes, the 10 year rule would apply to the trust.
  • Of course, if the trust fails qualification, then the 5 year rule applies from the start.

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