Stretching A Roth
If the owner of a Roth IRA were to pass away, is there a provision that would allow his beneficiary to stretch that Roth over their lifetime and thus not creating an tax burdens while doing so?
If the owner of a Roth IRA were to pass away, is there a provision that would allow his beneficiary to stretch that Roth over their lifetime and thus not creating an tax burdens while doing so?
Permalink Submitted by Alan Spross on Mon, 2008-12-15 20:18
Yes, a non spouse designated beneficiary can take distributions over their life expectancy starting in the year following the owner’s death. Roth RMDs are usually tax free unless large additional amounts are taken out within the first couple years following the owner’s death.
Only earnings of the Roth would be taxable if it has been less than 5 years since the Roth was first established. But since earnings come out LAST, after all the regular and conversion contributions, if the beneficiary only draws the RMD amount until the 5 year holding period is met, these distributions would be tax free because earnings would not be reached until the 5 year requirement had been met.
The 5 year period starts with the first year the owner contributed to a Roth IRA, and continues to run after the owner’s death.
These RMDs still need to be reported on Form 8606 each year, until the IRA custodian shows a “Q” in Box 7 of the 1099R. To complete the 8606 the beneficiary will have to find out how much of the inherited Roth was funded by regular or conversion contributions.