Roth Beneficiary
My father died in May of 2008. I am the beneficiary of the Roth IRA that he established about ten years ago, that consists of several mutual funds. I have several questions. Am I required to set up a Roth IRA account of my own into which this inheritance must be channeled? If so, am I required to take distributions over a specified time. If I do not have to set up an “inherited Roth IRA” can I just deposit the mutual finds from my Dad’s Roth IRA directly into my brokerage account. If so, will there be any tax (personal income or other) on the inherited shares of the mutual funds.
Permalink Submitted by Jose Morales on Fri, 2008-10-10 15:39
Qualified Distributions from Roth IRAs are tax and penalty free. In order for a Roth IRA distribution to be considered “Qualified” it must meet two criteria:
1. It must occur at least 5 years after the Roth IRA owner established his/her first Roth IRA.
2. and one of the following conditions must be met…
a. The IRA owner has attained the age of at least 59 1/2
b. first time home purchase ($10,000 lifetime limit)
c. the IRA owner is disabled
d. the funds are distributed to the beneficiary after the IRA owners death
It appears that you meet the criteria for a Qualified Distribution according to the information you have given us. If you want to establish a Roth IRA Beneficiary account you may, just be sure to take your required minimum distribution each year. This will allow you to continue investing the funds remaining within the Roth IRA and accumulate earnings tax free.
Permalink Submitted by Alan Spross on Fri, 2008-10-10 22:43
I agree.
For the minor inconvenience of taking a tax free RMD each year, the inherited Roth can produce tax free earnings for decades, vrs taking a full distribution and depositing it in a taxable account where your earnings will be taxable each year. Obviously, continuing the Roth is the only logical choice.
Be sure to name your own successor beneficiary on the Roth ASAP. Your first RMD is not due until December, 2009.
Permalink Submitted by Al Fry on Sat, 2008-10-11 03:40
Plus you control the investment, thus it becomes a self-directed inherited Roth IRA, which as Alan said will be tax-free (not just tax-deferred) for years to come. You have a rare opportunity that not many have as of yet.
Permalink Submitted by Janine Janine on Sat, 2008-10-11 13:45
What year were Roth IRA’s first made available?
Thank you.
Permalink Submitted by William Tuttle on Sat, 2008-10-11 14:44
1998