Is there an RMD on an inherited Roth IRA?
Understanding the rules surrounding Required Minimum Distributions (RMDs) is crucial for individuals who inherit a Roth IRA. One common question that arises is whether an inherited Roth IRA is subject to RMDs. In this article, we will delve into this topic and provide a comprehensive explanation to help you make informed decisions regarding your inherited Roth IRA.
What is an Inherited Roth IRA?
An inherited Roth IRA is an individual retirement account (IRA) that is passed down to a beneficiary upon the death of the original account holder. The beneficiary can be a spouse, child, or any other designated individual. Unlike traditional IRAs, Roth IRAs are funded with after-tax dollars, which means that withdrawals are tax-free in most cases.
Are RMDs Required on an Inherited Roth IRA?
The answer to whether there are RMDs on an inherited Roth IRA depends on the relationship between the original account holder and the beneficiary. Here are the key factors to consider:
1.
Spousal Beneficiaries:
If the beneficiary is the surviving spouse of the original account holder, they have the option to treat the inherited Roth IRA as their own. In this case, the surviving spouse can delay taking RMDs until they reach the age of 72, which is the age at which RMDs are required for traditional IRAs and inherited Roth IRAs.
2.
Non-Spousal Beneficiaries:
For non-spousal beneficiaries, RMDs are generally required. However, the rules are different for Roth IRAs compared to traditional IRAs. Here’s how it works:
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Five-Year Rule:
If the original account holder passed away before the age of 72, the non-spousal beneficiary must take RMDs over a five-year period, starting the year after the original account holder’s death. The total amount must be distributed by the end of the fifth year following the year of death.
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Life Expectancy Rule:
If the original account holder passed away at the age of 72 or older, the non-spousal beneficiary must take RMDs based on their life expectancy. The life expectancy is determined using the Single Life Expectancy Table provided by the IRS. The RMDs must be taken annually, and the distribution period may extend beyond five years.
Conclusion:
In conclusion, whether there is an RMD on an inherited Roth IRA depends on the relationship between the original account holder and the beneficiary. Spousal beneficiaries have the option to delay RMDs until they reach the age of 72, while non-spousal beneficiaries must take RMDs over a five-year period or based on their life expectancy. It is essential to consult with a financial advisor or tax professional to ensure compliance with the applicable rules and regulations.
