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Inherited Roth IRA by Spouse

I am age 70, when I die I understand that my spouse can inherit my Roth IRA and not have to pay taxes on it. He does not have a Roth of his own, so what will his options be. Will he have to open his own Roth account to roll the inherited Roth into, and if so will it then have a 5 year wait period for tax free withdrawls. 

Or will there be a Inherited Roth IRA account he can open, and then will there be RMD's on it?

I contacted Fidelity, and they said to check with the IRS. Anyone with the answers, or a link to and explation of this would be GREAT! Thank you all.

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Re: Inherited Roth IRA by Spouse


@jody49 wrote:

I am age 70, when I die I understand that my spouse can inherit my Roth IRA and not have to pay taxes on it. He does not have a Roth of his own, so what will his options be. Will he have to open his own Roth account to roll the inherited Roth into, and if so will it then have a 5 year wait period for tax free withdrawls. 

Or will there be a Inherited Roth IRA account he can open, and then will there be RMD's on it?

I contacted Fidelity, and they said to check with the IRS. Anyone with the answers, or a link to and explation of this would be GREAT! Thank you all.


Not sure why they did not answer the question. There are options. See the link below from Fidelity.

https://www.fidelity.com/retirement-ira/inherited-ira/learn-about-your-choices

Capital
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Re: Inherited Roth IRA by Spouse

I found this written out better than I can write it, hope it helps? i know it can be done easy if both of you have Roth accounts, but I assume he can open one according to this:

Spousal transfer. With this rule, you can basically transfer the assets in your spouse's Roth IRA to an account in your name. You can transfer the funds to an existing Roth IRA or to a new Roth IRA that you set up. This only works if you're the sole beneficiary on the account, and your account will be regulated by the same distribution rules as if you had originally opened and funded the account.

You can access the funds contributed to the account at any time, but the investment earnings from the account will be taxable until you reach age 59 ½ or you've met the rules for the five-year holding period. So if you need to take money out of the account after you do a spousal transfer, check with your accountant about the potential tax liability.

https://money.usnews.com/money/blogs/on-retirement/articles/2016-05-31/what-to-do-when-you-inherit-a...

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Re: Inherited Roth IRA by Spouse

Hi @jody49 

The surviving spouse inheriting the deceased spouse Roth IRA will want to roll it over into their own and combine them into one IRA titled to the surviving spouse. If the surviving spouse has no such IRA, Traditional IRA or Roth IRA, then the inherited IRA is simply retitled to the surviving spouse as though it had always been their own. There are no RMDs on Roth IRAs held individually or inherited by a spouse. There would be RMDs for non-spouse beneficiaries, depending on their age relative to the decedent.

The 5 year rule will apply to the inherited IRA that is rolled over to the surviving spouse. So if you've held the Roth that has existed at least since 2014 then the 5 year rule has been met. If you've held the Roth <5 years and die, the clock will continue to run. So say you did a large Roth conversion, say $200K, in 2019 and then die in 2020, your surviving spouse will roll it over into his newly created Roth (his first), where he'll have to wait to Jan 1, 2024 for his withdrawals from it to be 'qualified'. However, if he's at least 59.5, he could begin making withdrawals of the RIRA's basis (converted amount) which would not be taxable until all the basis was withdrawn and he started withdrawing earnings when the 5 year holding period had not yet been met.

I believe the inheriting spouse could title the deceased spouse's RIRA as an inherited (not rolled over) IRA subject tot he new 10 year full withdrawals rule....but I can't imagine why a surviving spouse would want to do that.

BruceM

Check with the IRS? Whew! Have they tried calling the IRS?

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Re: Inherited Roth IRA by Spouse

This used to be rather convoluted w/ all sorts of conditional tests. However, the SECURES Act of 2019 made significant changes to inherited IRAs and 401(k)s (traditional or Roth).

A beneficiary of an IRA can a) open an inherited IRA account, b) take a distribution (which will be taxable), or c) disclaim all or part of the inheritance (gives their portion to the other beneficiaries).

If a participant (aka an IRA/401(k) account owner) dies after December 31, 2019, and their beneficiary inherits all or part of the participant's IRA or takes a distribution from it (that is, claims their part of the account), then ...

effective January 1, 2020, the SECURES Act requires the entire balance of the original owner's or inherited account be distributed within ten years.
The new 10-year rule applies regardless of whether the participant (original owner) died before, on, or after, the required beginning distribution date, which, as of January 1, 2020, is now 72 yrs of age.

However, the 10-year rule does NOT apply if the beneficiary is a) a surviving spouse, b) a child who has not reached the age of majority, c) a disabled or chronically ill person or d) a person not more than ten years younger than the participant.

For non-spouses, the only Required Minimum Distribution (RMD) is that by ten years after the death of the original owner, ALL the assets in the IRA must be distributed to the beneficiary.

There are several options on what a beneficiary can do w/ the account - open inherited, rollover, distribute.  Beneficiaries of Roth IRAs also have to deal with conversions and basis, if any were done by the participant.  Complexities - so discuss w/ a IRA specialist and/or tax attorney.

Remember, once you inherit/claim an IRA, designate beneficiary(ies) !!

 

Good explantions here https://www.investopedia.com/articles/personal-finance/082515/inherited-ira-and-401k-rules-explained...

The actual SECURES Act here https://www.congress.gov/bill/116th-congress/senate-bill/1818/all-info

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Re: Inherited Roth IRA by Spouse


@Capital wrote:

Not sure why they did not answer the question. There are options. See the link below from Fidelity.

https://www.fidelity.com/retirement-ira/inherited-ira/learn-about-your-choices


it's not clear if Fidelity's article reflects changes due to the SECURES Act.

again, check w/ an IRA specialist and/or tax attorney.

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Re: Inherited Roth IRA by Spouse


@FatKat wrote:

I found this written out better than I can write it, hope it helps? i know it can be done easy if both of you have Roth accounts, but I assume he can open one according to this:

 

four years ago, that was valid. but note the date on that article May 31, 2016 !!

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Re: Inherited Roth IRA by Spouse


@erperez wrote:


four years ago, that was valid. but note the date on that article May 31, 2016 !!


yes, I failed to note, and assumed it was still relevant...............

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Re: Inherited Roth IRA by Spouse

@erperez : "However, the 10-year rule does NOT apply if the beneficiary is a) a surviving spouse,...."

Well, spouses had more options before and have after the SECURE Act.

They can claim the IRA as their own and then the same rules apply as for their other IRAs. This part isn't affected by SECURE Act. 

Or,

They can treat it as inherited/beneficiary IRA, and that then will be impacted by 10-yr distribution rule.

YBB
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Re: Inherited Roth IRA by Spouse


@yogibearbull wrote:

@erperez : "However, the 10-year rule does NOT apply if the beneficiary is a) a surviving spouse,...."

Well, spouses had more options before and have after the SECURE Act.

They can claim the IRA as their own and then the same rules apply as for their other IRAs. This part isn't affected by SECURE Act. 

Or,

They can treat it as inherited/beneficiary IRA, and that then will be impacted by 10-yr distribution rule.


you sure about the inherited part?

i think there is a difference between a rollover/claimed/assumed IRA and an INHERITED IRA.

my understanding of several IRS and other articles is:

If the spouse is the sole beneficiary (there are other rules for multiple beneficiaries), the spouse can

a) transfer assets into an existing or a new Rollover Traditional IRA. The spouse CAN make additional contributions to this IRA (assuming they have earned income).

b) transfer assets into a new Inherited Traditional IRA. This IRA remains separate from the surviving spouse's other IRAs. The spouse CANNOT make additional contributions to this IRA.

In both a) and b), the beneficiary takes Required Minimum Distributions (RMDs) based on their life expectancy, just like w/ other traditional IRAs.

c) take lump sum distribution (may not be the best option).

I think the 10-year rule only applies to non-spouse beneficiaries.

 

Sources

IRS = https://www.irs.gov/retirement-plans/required-minimum-distributions-for-ira-beneficiaries
https://www.irs.gov/retirement-plans/plan-participant-employee/retirement-topics-beneficiary

Schwab.com = https://www.schwab.com/resource-center/insights/content/inheriting-ira-understand-your-options

TD Ameritrade = https://tickertape.tdameritrade.com/retirement/inherited-ira-secure-act-stretch-provision-16710

NerdWallet = https://www.nerdwallet.com/blog/investing/inherited-ira-options/

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Re: Inherited Roth IRA by Spouse

@erperez 

I think @yogibearbull is correct. A surviving spouse as the sole beneficiary of the deceased spouse IRA or Defined Contribution Plan, as an Eligible Designated Beneficiary under SECURES will have the same 4 inheritance options that existed prior to SECURES, with one exception. Per Sec. 401(a)(1)(H)(ii)

“(i) IN GENERAL.—Except in the case of a beneficiary who is not a designated beneficiary, subparagraph (B)(ii)—

“(I) shall be applied by substituting ‘10 years’ for ‘5 years’,

So I read this to mean the old '5-year rule' for fully distributing the IRA is changed to 10 years. And I believe this applies not only to those spousal beneficiaries whose TIRA owner spouse died prior to their RBD and RIRAs (of any age of death) to all ages, IRAs and other employer retirement plans. I'm not 100% certain on this, and I've checked my normal reliable IRA sites and can't find a clear answer, so sent this question to a retired CPA friend who knows this space very well and has this annoying habit of always being right on such questions. I'll post back if he says otherwise.

BruceM

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war, hate, ignorance and sloth! (sorry, can't help myself :-)

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Re: Inherited Roth IRA by Spouse

@BruceM 

wrt "war, hate, ignorance and sloth! (sorry, can't help myself :-) "

at least you're keeping your mental abilities sharpened!!

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Re: Inherited Roth IRA by Spouse

"at least you're keeping your mental abilities sharpened!!"

And we're keeping our sense of humor. Very important these days!

BruceM

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