veremchuka
Thinks s/he gets paid by the post
My question concerns a non spousal inherited Roth IRA. I will leave my Roth IRA to my sister, why is she subject to RMDs? There is no tax on Roth IRA distributions so why would there be RMD requirements? This makes no sense so obviously (?) I am missing something.
I found this and it's long but it does indicate a non spousal inherited Roth IRA is subject to RMDs! The bold is my emphasis.
Roth IRA Required Minimum Distribution (RMD)
Let's assume the owner (whether the original owner or the surviving spouse who has accomplished a spousal rollover) of the Roth IRA has died and that a beneficiary who is not the spouse is now subject to Required Minimum Distributions rules. The beneficiary will have to take out the entire balance by December 31st of the year containing the fifth anniversary of the owner's death or the beneficiary will have to start taking distributions over the beneficiary's life expectancy starting no later the December 31st of the year following the year of the owner's death. If distributions to the beneficiary do not start by December 31st following the year of the owner's death, the rule requiring a complete distribution of the plan balance within five years will become effective. So it is very important to properly start distributions in the year after the owner's death if one wants to be able to take best advantage of the Roth IRA. Generally, a written election to this effect should be filed with the plan administrator as soon as possible.
A beneficiary would be well-advised to try take advantage of the ability to take withdrawals from the inherited Roth IRA over their life expectancy. The funds in the Roth IRA will continue to grow and compound tax-free while still part of the Roth IRA and the distributions from the Roth IRA will be tax-free as well. Imagine having an account that grows tax-free during your lifetime and pays you tax-free amounts on a yearly basis! That is what a Roth IRA can be to your heirs, such as your children and grandchildren. This after-death tax-free growth is sometimes referred to as the stretchout IRA concept. It is generally considered to be one of the two most valuable aspects of a Roth (the other being the post-70½ tax-free compounding). While Traditional IRAs also have a stretchout aspect, their tax-deferred stretchout is considerably less valuable than the tax-free stretchout offered by the Roth IRA.
How are Required Minimum Distributions calculated for the beneficiary of a Roth IRA? Let's assume a Roth IRA owner who was born on January 1st dies at the age of 90 and leaves the Roth IRA to a child who becomes 60 years old during that year. The child would have to take their first distribution in the year after the owner's death or in a year when they would be 61. The single life expectancy from the IRS tables for a 61 year old is 19.2 years. So in that year they would have to withdraw an amount equal to the preceding year's December 31st balance divided by 19.2. The next year, they would reduce the life expectancy value by 1 to 18.2 and then by 1 to 17.2 in the following year and so on. This is the same Term Certain Method referred to earlier.
The Term Certain Method is the only method available to a beneficiary who is not the spouse. One attribute of this method is that it does not depend on the beneficiary's actual life expectancy. If one lives long enough, the entire balance will have been distributed. If one dies before the end of the payment period (effectively a 20 year payout period in the example), the payment stream could continue if the funds are not fully withdrawn earlier. Note: Some IRA Agreements require a full distribution after the death of the beneficiary.
I found this and it's long but it does indicate a non spousal inherited Roth IRA is subject to RMDs! The bold is my emphasis.
Roth IRA Required Minimum Distribution (RMD)
Let's assume the owner (whether the original owner or the surviving spouse who has accomplished a spousal rollover) of the Roth IRA has died and that a beneficiary who is not the spouse is now subject to Required Minimum Distributions rules. The beneficiary will have to take out the entire balance by December 31st of the year containing the fifth anniversary of the owner's death or the beneficiary will have to start taking distributions over the beneficiary's life expectancy starting no later the December 31st of the year following the year of the owner's death. If distributions to the beneficiary do not start by December 31st following the year of the owner's death, the rule requiring a complete distribution of the plan balance within five years will become effective. So it is very important to properly start distributions in the year after the owner's death if one wants to be able to take best advantage of the Roth IRA. Generally, a written election to this effect should be filed with the plan administrator as soon as possible.
A beneficiary would be well-advised to try take advantage of the ability to take withdrawals from the inherited Roth IRA over their life expectancy. The funds in the Roth IRA will continue to grow and compound tax-free while still part of the Roth IRA and the distributions from the Roth IRA will be tax-free as well. Imagine having an account that grows tax-free during your lifetime and pays you tax-free amounts on a yearly basis! That is what a Roth IRA can be to your heirs, such as your children and grandchildren. This after-death tax-free growth is sometimes referred to as the stretchout IRA concept. It is generally considered to be one of the two most valuable aspects of a Roth (the other being the post-70½ tax-free compounding). While Traditional IRAs also have a stretchout aspect, their tax-deferred stretchout is considerably less valuable than the tax-free stretchout offered by the Roth IRA.
How are Required Minimum Distributions calculated for the beneficiary of a Roth IRA? Let's assume a Roth IRA owner who was born on January 1st dies at the age of 90 and leaves the Roth IRA to a child who becomes 60 years old during that year. The child would have to take their first distribution in the year after the owner's death or in a year when they would be 61. The single life expectancy from the IRS tables for a 61 year old is 19.2 years. So in that year they would have to withdraw an amount equal to the preceding year's December 31st balance divided by 19.2. The next year, they would reduce the life expectancy value by 1 to 18.2 and then by 1 to 17.2 in the following year and so on. This is the same Term Certain Method referred to earlier.
The Term Certain Method is the only method available to a beneficiary who is not the spouse. One attribute of this method is that it does not depend on the beneficiary's actual life expectancy. If one lives long enough, the entire balance will have been distributed. If one dies before the end of the payment period (effectively a 20 year payout period in the example), the payment stream could continue if the funds are not fully withdrawn earlier. Note: Some IRA Agreements require a full distribution after the death of the beneficiary.
