Considerations for Non-Spouse Beneficiaries of Roth IRAs


We previously discussed various Roth IRA issues and your options if you are the spouse of a deceased person and owner of a Roth IRA. For people who are not spouses, depending on the facts and circumstances, various alternatives exist that should be considered when inheriting a Roth IRA.

The first and easiest method of receiving a Roth IRA is to receive a lump sum distribution of the assets of the Roth IRA. Contributions will be tax-free and earnings will not be taxable as long as the initial contributions have been made more than five years after the death of the deceased. Of course, the downside to this option is that if you continue to invest the distribution there is a good chance that you will no longer grow your investment income tax-sheltered.

The next option is to open a Legacy IRA. Under the previous rule for a Roth IRA, the Roth IRA was transferred to the beneficiary’s name, and the beneficiary was required to withdraw the minimum required distributions that began no later than December 31 of the year following the year of death. of the deceased. A minimum required distribution is a distribution that is calculated based on the life expectancy of the beneficiary if that beneficiary were the sole beneficiary. However, under the Secure Act of Every Community for the Improvement of Retirement Act of 2019, this rule has been changed and the beneficiary must now withdraw the entire Roth IRA at later 10 years after the death of the deceased. You can withdraw Roth IRA contributions at any time and Roth IRA income will not be taxable, as long as the deceased first contributed more than five years ago to the Roth IRA. Income and growth in the assets of the account will continue to be tax exempt. You must also designate a beneficiary for the Roth IRA.

The next option is to have you distribute the Roth IRA over five years. In this option, the assets will be transferred to an inherited Roth IRA in the name of the beneficiary. Distributions from the Roth IRA will be made so that all assets are distributed to you by December 31 of the fifth year following the year of the deceased’s death. Again, you can withdraw contributions to the Roth IRA at any time, and the income from the Roth IRA will continue to grow and will not be taxable depending on when the initial Roth IRA contribution is made. You must designate your own beneficiary for your Roth IRA.

Therefore, if you are the beneficiary of a Roth IRA, you should contact your investment advisor to determine what your options are regarding the Roth IRA.

NOTE: This general summary of the law should not be used to resolve individual issues, as slight changes in the factual situation may require a significant variation in applicable legal advice.

Lawyer James F. Contini II is a Certified Specialist in Estate Planning, Trusts and Estates Law by the OSBA. He works for Krugliak, Wilkins, Griffiths & Dougherty Co. LPA in New Philadelphia.

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