Roth IRA BDA question
Advisor called regarding the taxability for Roth IRA BDAs. They were setting up a RMD plan for the client and had these questions regarding the tax withholdings. Can we confirm if distributions from Roth BDAs will be taxed? Or will they not, because this is Roth money?
Thank you.
Permalink Submitted by Alan - IRA critic on Fri, 2019-01-18 18:59
All inherited Roth IRA distributions are tax free once 5 years have passed from the year of the decedent’s first Roth IRA contribution. Even if the 5 years has not yet been reached, the RMDs are not likely to exceed the basis in the Roth IRA (all regular and conversion contributions done by the decedent). Therefore, if the 5 years has not been reached it should be determined when the Roth will be qualified for any gains to also become tax free, and not distribute gains until that time. Withholding is a different question, and Roth IRAs are not subject to any automatic or required withholding.