Personal Finance (Not Investing) • IRS Final Regulations 10-year rule for Roth IRA?

The IRS final rule on inherited IRAs is that an IRA account must be fully distributed in 10 years (except for some beneficiaries), and that annual distributions must now be taken based on the beneficiary's life expectancy. This applies to traditional IRAs where distributions are taxed.

What I can't find anywhere is whether the same annual distribution rule now applies to inherited Roth IRAs. Or, can a beneficiary elect to not take annual distributions from a Roth in order to allow the account to grow over the 10 year period? Would appreciate if someone can clarify.

Both the proposed Secure Act Regs and the final Regs do not require any RMDs in years 1-9 for Roth IRA 10 year rule beneficiaries. That's because all Roth owners pass prior to RBD since there is no RBD for Roth owners.

What the final Regs confirmed is that a 10 year rule beneficiary of a traditional IRA (or any non Roth requirement account) must take annual RMDs in years 1-9, but only if the owner passed on or after their RBD.

So because an inherited Roth IRA can continue to generate tax free gains over those 10 years, it makes good sense not to take any distributions until the end of the 10 year period.

Thanks for confirming that for me. I agree that a Roth beneficiary should delay distributions as long as feasible for them, especially since there would be no large tax obligation if it's all taken as a lump sum.

In my situation, I'll have a non-spouse primary beneficiary (my sister). Since she's only two years younger than me is she obligated to fully withdraw the Roth within 10 years?

She will have a choice.
Since you will pass prior to your RMD, your sister who will be an EDB (eligible for the stretch) can either take life expectancy RMDs every year based on her age
OR
She could opt out of EDB treatment and into the 10 year rule. if done prior to the end of the year following the year of your death. If she did so the annual beneficiary RMDs would be eliminated, but the inherited Roth would have to be drained in year 10. If she did not survive the entire 10 years, her successor beneficiary would be subject to the same 10 year ending date as her. Therefore, retaining EDB treatment is usually the better choice even though she will have annual RMDs.

Statistics: Posted by Alan S. — Thu Jul 25, 2024 12:04 pm — Replies 3 — Views 299

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