Last week in La Jolla, California, the Ed Slott team hosted another incredibly successful 2-day advisor training program. Nearly 200 financial professionals from across the country chose to join us for some intense IRA and retirement plan education. Topics included all things Roth, net unrealized appreciation, naming trusts as IRA beneficiaries, new SECURE 2.0 updates, QCDs, 10% penalty exception rules, creditor/bankruptcy protection rules, and the list goes on.
Question:
Hello,
Are you required to take out RMDs (required minimum distributions) on an inherited Roth IRA? The original owner was 82 when he passed away. The funds were left to his nephew, so I understand the 10-year rule will apply.
Thanks for your help,
David
Question:
Am I correct to assume if I leave my Roth IRA to my 2 adult children, they will have to take all the money out by the end of year 10 and they will have NO taxes to pay on it because it is a Roth? They can take some out each year with NO taxes due, but have the option to leave it all in the account for 10 years, if they desire.
Thank you!
Louise
Question:
Greetings,
There seems to be a lot of conflicting information on Inherited Roth IRAs, for which I was hoping to get a definitive answer from the experts.
My understanding was that a non-spouse beneficiary (who is not an eligible designated beneficiary), who inherits a Roth IRA wouldn’t be subject to annual RMDs but would be subject to emptying the account within 10 years of the original account owner’s death (for account owners who died after 2019, that is). I thought this exception was predicated on the original account owner of a Roth IRA not being subject to a required beginning date (RBD).
Question:
Do adult children who inherited a parent’s Roth IRA in 2020 need to take an RMD each year during the 10-year payout rule or may they leave it alone and deplete the account at the end of the 10th year? I’ve heard it both ways and would like to know which is correct.
Thank you.
Pam
Question:
Does the SECURE Act have any implication to Roth IRA account inheritance longevity? Please let me know. Thank you.
Regards,
Vikram
Answer:
Hi Vikram,
The SECURE Act does affect inherited Roth IRAs in the same way it affects inherited traditional IRAs. Most beneficiaries who inherit a Roth IRA in 2020 or later will be subject to a 10-year payout period.
Roth IRAs offer many benefits. Without a doubt, the ability to accumulate funds for retirement on a tax-free basis is clearly their biggest perk, but another huge advantage, relative to other retirement accounts, is that they do not have any required minimum distributions (RMDs) during your lifetime. However, that's not true for all Roth accounts. Make sure that you know about the RMDs the following Roth accounts do have.
An advisor called recently with this scenario. A 20-something beneficiary, let’s call her Corey, had just inherited several retirement accounts from her 50-something father. Corey was the named beneficiary on each account. Would you have known how to handle each one of them?
When a Roth IRA owner dies, the money belongs to the beneficiary. Although Roth IRA owners never have to take minimum distributions during their lifetime, the beneficiary must take distributions after the Roth IRA owner dies. Roth IRA beneficiaries have the same after-death stretch opportunity as if they inherited a traditional IRA. There are two options for you as the beneficiary of a Roth IRA, which we explain below.
I think we can all accept that the Tax Code is confusing. After all, it has to provide the rules for an extraordinarily vast array of circumstances. Sometimes though, the Code goes beyond merely confusing and borders on the bizarre. “Why would Congress do that?” you might ask yourself… and you’re not alone. While there are more than just a handful of bizarre items in the Tax Code, we’ve chosen to highlight three of them that relate directly to IRAs.
