Inherited Roth IRA

Submitted by Nick Pappas on Thu, 2023-08-31 18:01

Woman age 74 opens ROTH IRA on 6/31/2023 funded by a ROTH conversion of her Traditional IRA.
Passes away on 6/31/2024.
Non-Spousal beneficiary inherits the ROTH.

1. Is there a 5 year rule for tax free distributions of earnings
2. If there is, did the clock start on 6/31/2023 or 2024 (Original owners start date or beneficiaries start date)
3. If there is, are any distributions from the Inherited ROTH, during the initial 5 years, basis first from a tax perspective
4. Does the Inherited ROTH require an annual RMD during the 10 year payout period or may it all be done lump-sum by end of year 10.

Thank you in advance
Nick



Submitted by Alan - IRA critic on Thu, 2023-08-31 19:33

  1. Yes, earnings distributed from the inherited IRA will be taxable until 1/1/2028 since the inherited Roth will not be qualified until then.
  2. Clock started on 1/1/2023 and runs continuously during periods of owner and beneficial ownership.
  3. Roth conversion basis comes out first under the Roth IRA ordering rules, tax and penalty free, but will have to be reported on Form 8606.
  4. Lump sum OK. Since Roth owners pass prior to RBD (there being no RBD for a Roth), the non spouse beneficiary does not have to take annual RMDs in years 1-9, just drain the inherited Roth in 2034.

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