Does an Inherited Roth IRA Have an RMD?
Inheriting a Roth IRA can be a significant financial windfall, but it also comes with certain complexities. One of the most common questions among beneficiaries is whether an inherited Roth IRA has required minimum distributions (RMDs). The answer to this question is not straightforward and depends on various factors.
Understanding RMDs
To understand whether an inherited Roth IRA has an RMD, it is essential to first grasp the concept of RMDs. RMDs are mandatory withdrawals from retirement accounts, such as traditional IRAs and 401(k)s, that must be taken by individuals once they reach a certain age. The age at which RMDs must begin is 72 for individuals born after June 30, 1949. However, the rules for RMDs differ for inherited accounts.
Roth IRAs and RMDs
A Roth IRA is a retirement account that offers tax advantages, such as tax-free withdrawals in retirement. When it comes to RMDs, there is a crucial distinction between Roth IRAs and traditional IRAs. Unlike traditional IRAs, Roth IRAs do not have RMDs during the original account holder’s lifetime. This means that the account holder can leave the money in the Roth IRA and let it grow tax-free until they decide to withdraw it.
Inherited Roth IRAs and RMDs
When it comes to inherited Roth IRAs, the rules change. The inherited Roth IRA does not have RMDs during the original account holder’s life. However, once the original account holder passes away, the rules become more complex. Here’s how it works:
1.
Spousal Beneficiaries
If the original account holder named their spouse as the primary beneficiary, the surviving spouse can treat the inherited Roth IRA as their own. This means that the surviving spouse can continue to make contributions to the account and let it grow tax-free. However, the surviving spouse must take RMDs if they are not the sole owner of the account.
2.
Non-Spousal Beneficiaries
For non-spousal beneficiaries, the rules are different. Non-spousal beneficiaries must take RMDs from the inherited Roth IRA. The RMDs must be taken over the life expectancy of the beneficiary, as determined by the IRS life expectancy tables. This means that the RMDs will be smaller each year, allowing the account to grow tax-free for a longer period.
Conclusion
In conclusion, an inherited Roth IRA does not have RMDs during the original account holder’s life. However, once the account holder passes away, non-spousal beneficiaries must take RMDs over their life expectancy. Understanding these rules is crucial for beneficiaries to make informed decisions about managing their inherited Roth IRAs. Consulting with a financial advisor or tax professional can provide further guidance and ensure compliance with IRS regulations.
