Inheriting an Inherited Roth IRA
I have a client who inherited an Inherited Roth from her mother who passed away in May 2022. Does she need to take an RMD this year? Hard to find information on inheriting an Inherited Roth.
Thank you. So is it safe to say that the account distribution method would depend on who the original Roth IRA account owner was? If the mother needed to empty the account within 10 years and has 8 years left, for example, the daughter who inherited the Inherited Roth would need to empty it within 8 years?
Yes. But for mother to have been subject to the 10 year rule, she would have had to inherit the IRA after 2019. Once a beneficiary is subject to the 10 year rule, that deadline will apply to any successor beneficiaries as well.
The mother was not taking RMD’s from the Roth IRA, and did not take one in 2022. She inherited the Roth from her husband in 2020. The daughter who inherited from her mom received 50% of the Roth (one of two beneficiaries). I don’t know if the mother chose life expectancy or 10 year method. Thoughts on whether the daughter needs to take the RMD and does it have to be 10 year method or can she do life expectancy method based on mom’s life?
- Mother likely did not opt out of LE and into the 10 year rule, but she might have defaulted to ownership status if she did not complete her LE RMD in 2021 if one was due. Either way, her beneficiaries will be subject to the 10 year rule with no annual RMDs in years 1-9 (2023-2031) because the husband passed prior to RBD (Roths have no RBD). The inherited Roths must be drained by the end of 2032.
- The only question is whether mother became the owner by assuming ownership or by not taking a beneficiary RMD in 2021, or whether she completed her beneficiary RMD in 2021. To add to the complexity, mother would not be subject to beneficiary RMDs until husband would have reached RMD age and that year depends on his DOB. Therefore his DOB is needed to determine if mother was subject to RMDs in 2022, and whether the current beneficiaries need to make up that 2022 beneficiary RMD.
I have a question, what is the difference between the 10 year method and the life expectancy method based on mom’s life?
For an inherited Roth IRA, a sole spousal beneficiary is an EDB, and LE RMDs are due unless the spouse elects to be treated as the owner. The 10 year rule does not apply to the surviving spouse except for very unusual case of the surviving spouse opting out of EDB treatment and into the 10 year rule. In this particular situation, the successor beneficiaries must know if mother assumed ownership, or defaulted to ownership by not taking the beneficiary RMD that was required, or if mother distributed her beneficiary RMD in 2021 and remained in beneficiary status up to her death. Yes, this is quite complicated.
The original Roth IRA account owner (father) DOB was 8/1946. He passed in 2020 at 74 years. Does this help determine whether his spouse who inherited the Roth needed to take RMD for 2022 (meaning, the daughter now needs to take it since the mother has passed) ?
- Due to the age of the owner at his death, the spousal beneficiary was required to complete a beneficiary RMD for 2021 and 2022. If 100% of that beneficiary RMD was not distributed by the end of 2021, the surviving spouse defaulted into ownership of the inherited Roth. If default ownership occurred in 2021 (even if the Roth had not been retitled with the spouse as owner), the 2021 and 2022 RMDs were eliminated, and the children would not have any missed 2022 RMD to complete Nor would they have to take annual beneficiary RMDs before draining their inherited IRAs by the end of 2032.
- On the other hand, if mother completed her beneficiary RMD in 2021 and therefore did not default to ownership status, the children would have had to complete her 2022 beneficiary RMD if she did not complete it. But they still would not have to take annual RMDs from 2023-2031 and could wait to drain the inherited Roth until 2032.
- Therefore, the only question is whether they need to make up the 2022 beneficiary RMD or not depending on what mother did in 2021 and 2022 relative to becoming the owner.
Permalink Submitted by Alan - IRA critic on Mon, 2023-12-04 22:01
She does not need to take an RMD this year, but to know how long she can retain the inherited Roth IRA account depends on when mother inherited it and from whom. Further, if mother was taking annual RMDs and did not complete her 2022 RMD, client was responsible for completing that RMD.