Inheriting a Roth IRA
By Bill Griffith, Jr., CFP®
A Roth IRA owner is not required to take distributions from his or her account after the age of 70½. However, the regulations provide that minimum distribution rules do apply after the death of the account owner. The distribution of an individual’s interest in a Roth IRA account shall be made in accordance with Code Section 408 (a) (6).
Different rules apply depending on whether the individual’s sole designated beneficiary is:
1) His or her surviving spouse,
2) Someone other than his or her surviving spouse, or
3) Neither a surviving spouse nor non-spouse.
If the individual’s surviving spouse is the sole designated beneficiary, there are two ways that the entire interest in the IRA account can be distributed.
1) If the surviving spouse does not elect to rollover the account and treat the IRA as his or her own, the entire interest will be distributed, starting by the end of the calendar year of the individual’s death or by the end of the calendar year in which the account owner would have reached the age of 70 1/2, whichever is later. The entire interest will be distributed over the surviving spouse’s remaining life expectancy. The amount to be distributed in accordance with this election is determined by dividing the account balance at the end of the preceding year by the remaining life expectancy of the surviving spouse determined by using the Single Life Expectancy Tables.
2) If the surviving spouse does elect to rollover the account and treat the IRA as his or her own, the minimum distribution rules will be applied to the surviving spouse as owner of the account rather than as beneficiary of the interest in the IRA account as described above (Regulations Section 1.408A-2 A-4). If the surviving spouse does not take the required minimum distributions as a beneficiary determined by using the Single Life Expectancy Tables described in 1), the surviving spouse may then treat the IRA account as his or her own.
You may already know about how distributions from a Roth IRA account are taxed and that special rules apply for qualified distributions. A distribution is not includible in the IRA owner’s gross income if it is considered a qualified distribution. A distribution is a qualified distribution if it is made after a five year period. The five year period begins on the first day of the account owner’s taxable year in which a contribution is made to his or her Roth IRA account.
Normally, the five year period for an individual who is a non-spouse beneficiary of a the IRA owner’s account is determined independently of the beneficiary’s own Roth IRA. However, a special rule applies if the individual’s surviving spouse is the sole designated beneficiary. If the surviving spouse treats the IRA as his or her own, the five year period ends at the earlier of the end of the decedents five year period or the end of the five year period applicable to the spouse’s own Roth IRA account(s).
If someone other than the individual’s surviving spouse is named as the sole designated beneficiary:
1) The entire interest will be distributed, starting by the end of the calendar year of the individual’s death, over the non-spouse’s remaining life expectancy. The amount to be distributed in accordance with this election is determined by dividing the account balance at the end of the preceding year by the remaining life expectancy of the non-spouse determined by using the Single Life Expectancy Tables.
2) If the individual did not name his or her surviving spouse or a non-spouse as the sole designated beneficiary, the entire interest in the Roth IRA account must be distributed by the end of the fifth calendar year following the year of the account owner’s death.
Bill Griffith, Jr., CFP®
is principal of W.E.
Griffith & Associates, LLC,
a wealth management firm near Pittsburgh, Pennsylvania. He has been
providing specialized strategies and services for ensuring long-term
financial independence and security for many years. He has written
numerous articles about various topics relevant to personal finance,
retirement and investment planning and is author of the books Securing
a Retirement Income for Life
and More
Money for Retirement Right Now.
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