Spouse inherits deceased husband Roth IRA
He had held the Roth for over 30 years, contributed just over $16,ooo in the early years, investing in high tech firms (he was a retired tech employee) and so it was worth almost $300,000 at his death. The potential problem is she has never held a Roth. She is 64 and he was older at 71. If she rolls it over into a Roth she opens for herself, does she have to wait the 5 years for her withdrawals to be qualified, or will his holding period count when rolled over into her New Roth?
Permalink Submitted by Alan - IRA critic on Tue, 2025-03-25 18:59
His holding period counts if she assumes ownership.
If she assumes ownership, she gets the longer of her own holding period (which is 0) and deceased spouse’s holding period (30 years). Therefore the holding period is satisfied and being over 59.5 as well means that the assumed Roth is immediately qualified and tax free.
If she had been under 59.5, she might have maintained the Roth as inherited until reaching 59.5, although that would have triggered beneficiary RMDs starting in the year he would have reached 73. Those RMDs would be tax free because the inherited Roth was qualified (5 years and his death).
Permalink Submitted by BruceM on Wed, 2025-03-26 10:53
Thanks. The first part of your response is what I was looking for.
But the second part has me a bit confused. If she was under 59.9 and he’d held the Roth at least 5 years and she left the RIRA titled as inherited, and she needed to take withdrawals that exceeded the Roth’s basis, then beginning the year after his death, she would fall under the former rules and would either begin RMDs using her life expectancy….or….would use the 10 year with no withdrawals required until the 10th year and any/all withdrawals she makes would be qualified, correct? But with no RBD for a Roth, why would his RMD age matter?
Permalink Submitted by Alan - IRA critic on Wed, 2025-03-26 11:34
If she maintained the Roth as inherited assuming being under 59.5, because it would be qualified, all her distributions would be tax free, but beneficiary RMDs would be due starting in the year spouse would have reached 73. She would be an EDB not subject to the 10 year rule and would presumably assume ownership at 59.5 to stop the beneficiary RMDs, and also to make her beneficiary a designated beneficiary.
There is a new option for her per Sec 327 of Secure 2.0 to be treated as the participant for RMD purposes only, but because all Roth owners pass prior to RBD, this option is automatic for spousal beneficiaries and does not have to be elected. It is also automatic for TIRA spouse beneficiaries if the decedent passed prior to RBD but must be elected by notice to the custodian if the TIRA owner spouse passed after RBD. For this spouse, that would mean that the beneficiary RMDs will be based on the Uniform Table automatically, and the single life table would not apply.
She could also have opted out of EDB treatment and into the 10 year rule, but that’s a bad option because it would trigger make up RMDs when she decided to elect ownership. Of course, this is even worse for a TIRA spousal beneficiary due to taxes due. This election would only be worthwhile in unique situations.
The sole spouse beneficiary rules have not changed with respect to being exempt from beneficiary RMDs until the deceased spouse would have reached RMD age (73 in this case), and this applies to a Roth IRA spousal beneficiary even though the decedent would not have been subject to RMDs if he lived. Inherited Roth IRA RMDs fall under the same basic rules as inherited non Roth IRAs when they become due, even though the taxation is entirely different.
Finally, the old rules continue whereby if a sole spousal beneficiary of any IRA type fails to take a full beneficiary RMD, they default to ownership automatically. For a Roth spousal beneficiary, this means that beneficiary RMDs would end in the year prior to the year that the spouse defaults to ownership.
So some of these changes occur automatically with no election, and others must be elected, which makes the rules more complex than before Secure 2.0.
Permalink Submitted by BruceM on Thu, 2025-03-27 12:43
Thanks much. Yes, the SECURE 2.0 update is interesting…..but its also confusing to most. Amazing how such a simple concept as an IRA can become so complex in its multiple options when inherited.