Transfer Inherited Roth IRA from Trust as Beneficiary
My mother passed away and had the Family Trust as beneficiary of her Roth IRA. My father preceded her in death and she never took an RMD from this Roth IRA during her lifetime. As successor trustee (I am her son) can I divide the Inherited Roth IRA with the Trust as Beneficiary between myself and my two siblings and each have a new Inherited Roth IRA in our names?
Permalink Submitted by Alan - IRA critic on Fri, 2024-07-05 17:34
There are other factors in play here. Did mother assume ownership of the inherited Roth IRA or did she maintain it as a beneficiary? This determines if the trust is itself a successor beneficiary or a designated beneficiary if the trust is qualified for look through. Also need to know if father passed prior to 2020 or after 2019.
The terms of the trust determine if you have the discretion to assign the inherited Roth IRA out of the trust to the trust beneficiaries, but even if you do have that authority, the Roth custodian may not accept your request for assignment. Assignment does not change the RMD requirement determined by the additional info requested above.
Permalink Submitted by James Campbell on Fri, 2024-07-05 21:36
I don’t know for certain if this Roth IRA originated as my mom’s or it became hers when my father passed in June 2017 (I don’t believe that matters). I believe it was a mistake for my mother to have set the Family Trust of which she was the Trustee as beneficiary of the Roth IRA as opposed to me and my siblings (were in our late 50s, early 60s) and had no other reason to have done that.
The Trust Agreement does not specifically mention the Roth IRA and only says upon my (my mother’s) death the balance of the trust estate should be allocated as follows: one equal share for each of my children who survives me…(the rest in the event one had not survived my mother which is not the case). I would like to keep it as an inherited Roth IRA for myself to enjoy the 10 years of tax free growth.
I am working with the custodian (Schwab) about transfer from the estate inherited Roth IRA to our individual inherited Roth IRAs and I believe they can do that.
Permalink Submitted by Alan - IRA critic on Fri, 2024-07-05 22:34
If mother never took RMDs from the Roth IRA, she will be treated as the owner, even if the Roth IRA was still titled to her as beneficiary at the time of her death. Schwab should know the history if they held the IRA the entire time.
And if she was the owner, the trust will be treated as a designated beneficiary if it is qualified for look through. Most trusts are, but the trust details must be provided to Schwab no later than 10/31 of the year following the year of her death (DOD not stated). Schwab will review the beneficiary provisions of the trust, but as you described them you should have the authority to assign the inherited Roth out of the trust. If the trust info is not submitted to Schwab by the deadline the trust will not be qualified and the 5 year rule will apply rather than the 10 year rule.
If the trust IS qualified, the 10 year rule will apply with no annual RMDs required whether Schwab accepts the assignment request or not. Schwab will of course need all the beneficiary contact info for each trust beneficiary in order to set up inherited Roth IRAs for each of you. You would each then have your own inherited Roth IRA to manage, name your own successor beneficiaries, and transfer to a different custodian if you wished to. No annual beneficiary RMDs are needed by the inherited Roth accounts must be drained by the end of the 10th year following her year of death.
Schwab has a dedicated estate unit for you to deal with.
From what you describe, it does appear that the trust served no useful purpose and you all should have been listed as outright beneficiaries on the Roth IRA.
Permalink Submitted by James Campbell on Fri, 2024-07-05 23:48
Thanks Alan for the detailed responses. My mother passed in March 2024. I am working with the Estate Department at Schwab too.