Inherited Inherited IRA

Submitted by Susan Powers on Mon, 2023-08-21 19:59

My sister died in 2020 at age 61.She had a Roth IRA and 401K ,converted to an IRA after her death, which she left to my mother aged 90 at her time of death for her long term care. It was required that I take a distribution for her by plan rules upon the conversion. She was disabled but functional – early dementia and needed help with ADL’s – thus chronically ill as well. She herself had an IRA which she was taking RMD’s. My mother recently died last year, 2022 and left everything to me. I am only 62. I am the direct beneficiary of my mother’s IRA so I understand since she was taking RMD’s I must delete that account in 10yrs of her death. The question is my sister’s money. She was not taking RMD’s, and I am not more than 10 years younger than her. Can I do the stretch on her money as an EDB? Can I stretch her Roth? I’m still working and will be for a while since I’m not eligible for Medicare yet. Pulling money would be a tax nightmare at least right now. Your thoughts on this scenario?



Submitted by Alan - IRA critic on Mon, 2023-08-21 21:02

  • For the IRA owned by your mother, you are a 10 year rule beneficiary, but must also take annual RMDs in years 1-9  using your single life expectancy for your attained age in 2023 because mother passed after her RBD. That said, the IRS has waived any penalty for not taking your annual RMD for 2023, but you will probably have to start annual RMDs in 2024. You must drain this inherited IRA by the end of 2032.
  • The other accounts originally owned by your sister were inherited by your mother who was an EDB. However, a successor beneficiary (you) does not qualify as an EDB, therefore you are subject to the 10 year rule on these IRAs, and must also drain these in 2032. However, because your sister passed prior to RBD, you do not need to continue the annual RMD schedule your mother was using. The inherited Roth will be non taxable, but you might want to volutarily take annual distributions from the inherited TIRA to eliminate a taxable income spike in 2032.
  • If mother did not complete her beneficiary RMDs for 2022 before passing, you became responsible for doing so. You have until the due date for your 2022 return including any extensions to do so.

Submitted by Jay Bornstein on Thu, 2023-12-14 15:50

On yesterday’s webcast in the Q&A several answers seemed to indicate that if you inherited an inherited roth ira  that the distributions would be taxable income.  This did not seem right to me.  Did I misread something or was I misunderstanding.  It would seem strange that the tax free Roth could be converted into a taxable account.

Submitted by David Mertz on Thu, 2023-12-14 16:10

Sounds like there was some miscommunication.  Distributions from an inherited Roth IRA are subject to inclusion in income to the same extent as they would be if the decedent had lived and had made the distribution.  If the distribution is made more than 5 years after the beginning of the year for which the decedent first made a Roth contribution, the distributions are nontaxable qualified distributions.  If the distribution is made before the end of that 5-year period and are therefore not qualified distributions, distributions follow the Roth IRA distribution ordering rules with the taxable amount calculated on a Form 8606 Part III.

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