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Roth IRA Beneficiary question
Old 04-16-2009, 12:04 PM   #1
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Roth IRA Beneficiary question

My Dad has a Roth IRA. If he lists my Mom as his primary beneficiary then if anything happens to him she then owns my Dad's Roth IRA and does not have to take any RMD for her lifetime. I'm pretty sure I got this part right.

Here is the part I was not sure on that I wanted to see if anyone knew.

If my Mom inherits my Dad's Roth IRA can she then name me as a beneficiary. And then if anything happens to her I own the Roth IRA and then I take the RMD tax free from the Roth IRA based on my life expectancy at that point in time?

I have spent so long trying to find the answer to this question. I think I have it right but I wanted to check with some others to see if I do have it correct.

Jim
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Old 04-16-2009, 12:17 PM   #2
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Quote:
Originally Posted by summer2007 View Post
My Dad has a Roth IRA. If he lists my Mom as his primary beneficiary then if anything happens to him she then owns my Dad's Roth IRA and does not have to take any RMD for her lifetime. I'm pretty sure I got this part right.

Here is the part I was not sure on that I wanted to see if anyone knew.

If my Mom inherits my Dad's Roth IRA can she then name me as a beneficiary. And then if anything happens to her I own the Roth IRA and then I take the RMD tax free from the Roth IRA based on my life expectancy at that point in time?
To my understanding, that's correct on all counts, with one addition: non-spousal beneficiaries can choose NOT to take RMDs, but if they go this route they are required to fully deplete the account by the end of the year containing the fifth anniversary of the account owner's death.

So to clarify, if your mom passed during 2009, beneficiaries would have two options:

1) Start taking RMDs according to the beneficiary's life expectancy, with the first RMD required by December 31, 2010;

2) Fully distribute the account by December 31, 2014. If someone did not take an RMD by 12/31/2010, they would have to adhere to this one or suffer the tax consequences.

I suspect that for *most* people who don't have immediate need of the funds, option 1 is probably preferable unless there are unusual circumstances.
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Old 04-16-2009, 02:44 PM   #3
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Here's a link to a relevant article:
Inherited Roth IRA

The article doesn't address it specifically but one thing I wondered about was the proper handling of the account when you inherit it. With TIRAs, I've seen a big deal made about how you have to title it properly as an inherited IRA w/ both persons' names on the account; also how you cannot do a rollover...only direct transfers are allowed. I wondered if the same rules applied to the Roth. You could ask at the forum at irahelp.com
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Old 04-16-2009, 04:22 PM   #4
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To my understanding, that's correct on all counts, with one addition: non-spousal beneficiaries can choose NOT to take RMDs, but if they go this route they are required to fully deplete the account by the end of the year containing the fifth anniversary of the account owner's death.

To the best of my knowledge, Roth IRAs do not have a RMD. Tax has already been paid
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Old 04-16-2009, 04:30 PM   #5
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Originally Posted by summer2007 View Post
If my Mom inherits my Dad's Roth IRA can she then name me as a beneficiary. And then if anything happens to her I own the Roth IRA and then I take the RMD tax free from the Roth IRA based on my life expectancy at that point in time?
This might be of some help: Inherited Roth IRA
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Old 04-16-2009, 05:57 PM   #6
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To the best of my knowledge, Roth IRAs do not have a RMD. Tax has already been paid
As shown in detail in Wahoo's link there are RMDs for non-spouse beneficiaries. The government does not want that money to grow and grow forever tax free. Once it is distributed it can continue to grow but the growth won't be tax free.
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Old 04-16-2009, 10:45 PM   #7
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summer,

I don't believe you have to pay RMD

You may want to read up on Roth IRA taxation
Roth IRA Tax
or
Roth IRA Investments

I think I saw something on RDM and taxes there

Cheers

Quote:
Originally Posted by summer2007 View Post
My Dad has a Roth IRA. If he lists my Mom as his primary beneficiary then if anything happens to him she then owns my Dad's Roth IRA and does not have to take any RMD for her lifetime. I'm pretty sure I got this part right.

Here is the part I was not sure on that I wanted to see if anyone knew.

If my Mom inherits my Dad's Roth IRA can she then name me as a beneficiary. And then if anything happens to her I own the Roth IRA and then I take the RMD tax free from the Roth IRA based on my life expectancy at that point in time?

I have spent so long trying to find the answer to this question. I think I have it right but I wanted to check with some others to see if I do have it correct.

Jim
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Old 04-17-2009, 02:42 PM   #8
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Thanks everyone!

As Martha was saying even though it is a Roth if you are not a spousal beneficiary you are required to take RMD unless you do the 5 year plan like Ziggy was saying.

I have 4 of ED Slott's books and I could not find it anywhere in there or online that said if having your spouse take over the Roth first changes anything for non spousal beneficiaries...I guess it dose not.

A lot of Ed's books talk about the benefit of the "stretch" Roth IRA. But it talk about naming someone younger like a Child or Grandchild as the primary beneficiary so they can then "stretch" the Roth IRA RMD's over a longer span of time.

I just could not find anywhere where it said one way or the other if a Roth IRA owner named his or her spouse as primary beneficiary and he or she does not take any RMD. If that would make any difference if they inherited the Roth IRA and then named their Child or Grandchild.

Jim
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Old 04-17-2009, 07:21 PM   #9
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Jim......most of what I've read deals w/ TIRAs(not Roth) so I'd doublecheck this info (at Ed Slott's forum irahelp.com). I'm assuming the TIRA info also pertains to Roth but not sure...

In TIRA, the spouse can choose to treat inherited IRA as their own. I think that means they title it in their name alone. I would guess for Roth that same applies. Clearly, then if that is true, they can name their own beneficiary for the stretch.
It would also be true that if it is their own now, no RMD would be required(for Roth).

In TIRA, however, spouse can decide not to treat as own.
Then it becomes inherited (or beneficiary?) IRA with names of both decedent/beneficiary in title. One reason they might decide to do this is if spouse is younger than 59.5 and wants access to funds w/o penalty(via RMDs). With a Roth, a similar possibility might exist for the same reasons. In this case, it is less clear to me what happens when both spouses are gone. I think I know that w/ non-spousal beneficiaries, the stretch cannot go on forever ....only goes 1 or possibly 2 steps.

another question: if inheriting spouse decides not to make Roth their own, are they then subject to RMDs like other non-spousal beneficiaries?
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Old 04-17-2009, 09:02 PM   #10
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Originally Posted by summer2007 View Post
Thanks everyone!



I just could not find anywhere where it said one way or the other if a Roth IRA owner named his or her spouse as primary beneficiary and he or she does not take any RMD. If that would make any difference if they inherited the Roth IRA and then named their Child or Grandchild.

Jim
It won't make a difference. The end result is that the children or grandchildren are beneficiaries and will be required to take RMDs or follow the 5 year rule.
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Old 04-17-2009, 09:03 PM   #11
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another question: if inheriting spouse decides not to make Roth their own, are they then subject to RMDs like other non-spousal beneficiaries?
No. They are still a spouse beneficiary.
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Old 04-18-2009, 07:45 PM   #12
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Thanks kaneohe and Martha.

That answers my question!

Jim
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