Conversion to Roth: Non-Spouse Beneficiaries subject to 5-Year Rule?
Hi,
Betty inherits a Traditional IRA from her spouse. More than 7 years later, Betty, now age 85, takes part of the balance and converts it to her Roth IRA, which has been opened for at least a dozen years.
About 2 years after this conversion, Betty passes away, and her child Jay is the beneficiary of her Roth IRA. Because the funds converted from the Traditional IRA were added less than 5 year ago, does a “5 year rule” apply and must Jay wait to take distributions of the converted earnings? Or can Jay withdraw the entire balance from the Roth IRA immediately without penalty if desired?
Thanks.
Permalink Submitted by Alan - IRA critic on Fri, 2023-12-22 01:44
Since Betty first contributed to a Roth more than 5 years prior to her death, the inherited Roth IRA is entirely qualified and tax free. There are no 5 year waiting periods. While Jay does not have to take any RMDs until the 10 year rule period is up (assuming he inherited after 2019), if he wants to take distributions earlier, they will be tax and penalty free.
Permalink Submitted by Joe Bello on Wed, 2023-12-27 22:37
Thank you very much Alan-iracritic. Your reply is very helpful.