Inherited Roth IRA

Submitted by D S on Mon, 2023-02-27 20:23

HI,

My sister passed away 12/27/21. She was born 7/4/62. I inherited her Roth IRA. It had been open more than 5 years. I am only 5 years younger than her. So i am thinking i am a eligible designated beneficiary. I want to do my RMD’s over my life time.

I did not take any RMD in 2022. Since I did not take out the RMD am I still eligible to do this? Also, I have read that the IRS is now forgiving RMD’s that were not taken in 2022 because tax payers were confused as when to take it out. Is this true? Would I be eligible for this? Or does only apply to RMD’s not take on the 10 year rule? Also would the first RMD if I had taken it out been based on the ending balance of my sister’s account on 12/31/21?

Thanks so much for your help!

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Permalink Submitted by Alan - IRA critic on Mon, 2023-02-27 20:45

Since you are an EDB, you need to make up the missed 2022 beneficiary RMD. The RMDs that the IRS agreed to waive the penalties for involved 10 year rule beneficiaries. As an EDB you are not a 10 year rule beneficiary. Therefore, you should make up the missed 2022 RMD, and file Form 5329 requesting the penalty waiver. Be sure you read the line 54 and 55 instructions since they are not intuitive.
You are correct that the 2022 RMD is based on the 12/31/2021 balance even though the Roth was still in sister’s name on that date. Use your attained age in 2022 to get the divisor from the new single life table effective in 2022.
All your distributions will be tax free since the inherited Roth is qualified. Report only the amount distributed on line 4a of Form 1040. Form 8606 is not needed.

Permalink Submitted by D S on Tue, 2023-02-28 17:29

I really appreciate the help! It really helped out!If I add up all the accounts I was supposed to take RMD’s from and add all the RMD’s up I was supposed to take out can I take that amount from just one account? Also, can I take it from traditional IRA account instead of a Roth IRA? Would that count for my Roth IRA’s?Thanks so much!

Permalink Submitted by Alan - IRA critic on Tue, 2023-02-28 17:53

For accounts that you inherited from your sister that she owned and was not a beneficiary herself, and from which you established your own inherited IRA by 12/31/2022, you can take your total beneficiary RMD from just one of those accounts. However, you cannot take a inherited Roth RMD from a traditional inherited IRA. Inherited traditional IRA RMDs must be satisfied separately from inherited Roth IRA RMDs.

Permalink Submitted by D S on Wed, 2023-03-01 17:16

When my sister passed 12/27/21 she left my Mom a Roth IRA. My Mom was 83 at the time. Since she is not a EDB to my sister, she would have been subject to the 10 year rule? Meaning Mom would have had to take out all the money within ten years, and had to take out RMD’s every year correct? Mom never took out any RMD’s. Since she didn’t take out the 2022 RMD on the 10 year rule, the IRS waived that RMD for that year correct? So that doesn’t have to be taken out or paid back correct? (any forms need to be filed?) Mom passed away 12/26/22 at age 84. I am now inheriting my Moms Roth IRA that she got from my Sister. I am not a EDB with my Mom. Now am I subject to the 10 year rule? Or since my Sister was the original Roth owner of the IRA, and I would qualify as a EDB with her, would I be able to take distribution’s over my life time?Thanks so much for your help, its truly appreciated!

Permalink Submitted by Alan - IRA critic on Wed, 2023-03-01 17:49

Your Mom was an EDB since like you she is not more than 10 years younger than sister. She was required to take LE RMDs starting in 2022, but because she did not complete her 2022 RMD, you are responsible for completing that by 4/18/2023. Her divisor was 8.7, divided into the 12/31/2021 Roth balance.
You are now the successor beneficiary on the inherited Roth, and as such become subject to the 10 year rule but without annual RMDs because the original owner (sister) passed prior to her RBD. Other than completing mother’s 2022 year of death RMD, you can let the inherited Roth grow through 2032 with no annual RMDs. A successor beneficiary can never be an EDB, therefore the 10 year rule applies here.

Permalink Submitted by D S on Fri, 2023-03-31 21:47

For Moms tax return what forms would I need For the RMD? Also, when I take out Mom’s RMD do I have to pay a penalty? If so, how can I get it waived? Thanks so much!

Permalink Submitted by Alan - IRA critic on Fri, 2023-03-31 22:38

Since Mom passed before the end of 2022, her final return would not report anything with regard to the inherited Roth IRA. Of course, a final return is likely required to report her other income up through her date of death.
You must complete her 2022 RMD by 4/18/2023 to avoid any penalty. That will be reported on a 1099R to you for 2023. If you are sure that your sister first contributed to this Roth IRA prior to 2019, the inherited Roth IRA is now qualified and all distributions you receive from it including RMDs will be tax and penalty free.
You now have 2 inherited Roth accounts from different decedents with different RMD requirements. Therefore they must be kept entirely separate from each other and cannot be combined into a single inherited Roth.

Permalink Submitted by D S on Sat, 2023-04-01 01:04

For the Roth IRA that went from my Sister to my Mom to Me. I have to take out my Mom’s missed 2022 Rmd (2021 final balance / my Mom’s 8.7 divisor) by 4/18/23. Then next year on my 2023 taxes I have to report the distribution on form 1099R. Then going forward since my Sister is the original owner who passed before her Rmd, I can let it grow without any annual Rmd’s. On the Roth and Traditional IRA that went from my Sister to Me, in which I am a EDB, that I missed the 2022 Rmds. I have to take out the missed 2022 Rmds (2021 final balance/my age divisor in 2022). (I was 54 in 2022, what was divisor number from the new single life table effective in 2022?) I have to take 2 separate distributions one from the Roth IRA, and one from the Traditional IRA. Then for my tax returns for 2022, I have to file form 5329 requesting a penalty waiver. (I looked at the form and didn’t see a place to ask for a penalty waiver I did look at line 54 and 55. Any suggestion?)I also report for 2022 tax returns the amounts distributed from the Roth and Traditional Rmds on line 4a of form 1040. (or is this only for Roth IRAs?what line and what form for Traditional Rmds?) Then going forward even though my Sister passed before her Rmd, since I am a EDB, each year I have to take out a annual Rmd. It is based on the final account balance of the year before / by my age and divisor from the New Single Life table for that year.Hopefully, this all correct.I am very very grateful Allen! Thanks so much!

Permalink Submitted by D S on Sun, 2023-04-02 21:21

I was 54 in 2022, what was the divisor number from the new single life table effective 2022? I figured out how to do form 5329, and 1040 4a line. Can please tell me above the “To Sum Up” is that all correct? Thanks again Allen!

Permalink Submitted by Alan - IRA critic on Sun, 2023-04-02 23:02

Your 2022 beneficiary divisor is 32.5. Then subtract 1.0 from that divisor for each year after 2022. Since you are subtracting from the 32.5 divisor each year there is no need to return to the table each year.
With respect to your “sum up” post, this is correct except for the following: 1) The custodian reports your distribution on Form 1099R and then you report them on Form 1040, lines 4a and 4b. The entire distributions of both Roth and TIRA goes on line 4a. Line 4b is the taxable amount line and only distributions from the TIRA go on 4b.

Permalink Submitted by D S on Mon, 2023-04-03 00:53

You have been tremendous!I am ever so grateful and thankfu!D

Permalink Submitted by D S on Mon, 2023-04-03 23:44

For the 2022 Tax return that I missed the RMD, on 1040 4A line do I leave blank and fill out 5329. Or do I put in the RMD amount that I should have taken out on 1040 4 A line and also file form 5329?Also going forward when is the Rmd’s due? In April tax deadline or by December 31st of that year?

Permalink Submitted by Alan - IRA critic on Tue, 2023-04-04 01:27

All inherited IRA RMDs are due by 12/31 of the RMD year, never by the tax due date except for the year of death RMD that you must complete because the deceased did not.
Line 4 of Form 1040 is for reporting all distributions in the year received. If they are late, report them in the year you made up the late RMD, not in the year that you should have taken it. In other words, report them according to the 1099R you will receive for the year the distribution was taken.
Form 5329 is handled differently because it deals with excise taxes, including a waiver request for a missed RMD. The 5329 with a penalty waiver request must be filed for the year the RMD was missed. Therefore, for a missed 2022 RMD, file a 2022 5329 after you made up the missed RMD and include a statement of the amount you made up and a reasonable cause for being late. Not understanding the Secure Act RMD rules is a sufficient reason.

Permalink Submitted by D S on Tue, 2023-04-04 02:01

Thanks Allen!!

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