Distributions from an Inherited Roth IRA

How Must I Take Distributions from the Roth IRA I Inherited? This flowchart will guide you through the eligibility factors.

How Must I Take Distributions from the Roth IRA I Inherited?

Inheriting a Roth IRA comes with unique distribution rules. Knowing these rules can help you maximize your inheritance while avoiding penalties.

If you inherit a Roth IRA, your distribution options depend on your relationship to the original owner and the timing of their passing. The SECURE Act, effective January 1, 2020, introduced a 10-year rule for most non-spouse beneficiaries. You must withdraw the entire account balance within ten years of the owner’s death. However, you can take distributions at any time within this period without a set schedule.

Spouses inheriting a Roth IRA have more flexibility. You can treat the account as your own, delay distributions, or roll it into an existing Roth IRA. Because Roth IRAs do not require Required Minimum Distributions (RMDs) during the owner’s lifetime, spouses can continue the account’s tax-free growth indefinitely.

Beneficiaries

Eligible Designated Beneficiaries (EDBs), such as minor children, disabled individuals, or beneficiaries within ten years of the original owner’s age, may stretch distributions over their life expectancy. This option allows for tax-free growth over a longer period.

Non-designated beneficiaries, such as estates or charities, follow stricter rules. If the original owner passed before the account was five years old, the five-year rule applies. The entire balance must be withdrawn by the end of the fifth year following the owner’s death.

Remember, Roth IRA distributions are generally tax-free if the account meets the five-year rule. This rule applies from the date of the original owner’s first Roth IRA contribution.

Managing an inherited Roth IRA requires careful planning. Work with a financial advisor or tax professional to optimize your strategy. By understanding the rules, you can protect your inheritance and make informed decisions.

This article is educational only and is not intended to be investment, legal, or tax advice or recommendations, whether direct or incidental. Again, this is not investment advice. Consult your financial, tax, and legal professionals for specific advice related to your specific situation. Never take investment advice from someone who doesn’t know you and your specific situation. All opinions expressed in this article are those of the people expressing them. Any performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be directly invested in.