INHERITED ROTH IRAs AND NUA: TODAY’S SLOTT REPORT MALBAG

Thursday, August 08, 2024

By Ian Berger, JD
IRA Analyst

Question:

Thank you for all of the wonderful information. I have a question as to how the July 18, 2024 final regulations impact inherited Roth IRAs. My daughters inherited Roths from their grandmother 3 years ago. She was age 101. They were planning to just let them grow until the end of the 10-year payout period. Do the new final SECURE Act regulations now require them to take RMDs before 10 years?

Similarly, assuming no law changes, based on the July 2024 regulations, if they inherit my Roths (I am now 74), will they need to take annual RMDs or just do a payout by the end of the 10 years?

My understanding is that in both cases they would not be an eligible designated beneficiary.

Thanks.

Answer:

You are correct that in both cases, your daughters are “non-eligible designated beneficiaries.” That is why they are subject to the 10-year payout rule. But since they are inheriting Roth IRAs, they are not required to take annual RMDs during the 10-year period and can let the inherited Roth IRAs grow tax-free for 10 years. The recent IRS regulations did not change this rule.

Question:

I attended the recent Instant IRA Success 2-Day IRA Workshop in Maryland and have a question on a net unrealized appreciation (NUA) opportunity for a client who is age 62 but still working at his employer. He would like to complete an in-service withdrawal with NUA but will still be contributing to his 401(k) for the remainder of the year (and until retirement). The subsequent contributions will cause the account to not be at $0 as of 12/31/24.

Can he use the NUA strategy now?

Answer:

Thank you for attending our workshop. For your client to use the NUA strategy now, he would have to empty his entire 401(k) account by 12/31/24 and stop contributing for future years. If he were to continue to contribute, that would nullify the NUA distribution. He could also wait and use NUA in the calendar year when he separates from service (or in any subsequent calendar year). But he would have to take his entire 401(k) account out during the calendar year that he completes an NUA transaction.

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