Do you have to take RMD from inherited Roth IRA?
When it comes to inherited Roth IRAs, one of the most common questions that arise is whether or not the beneficiaries are required to take Required Minimum Distributions (RMDs). The answer to this question depends on several factors, including the relationship between the original account holder and the beneficiary, as well as the type of Roth IRA being inherited.
Understanding RMDs in Inherited Roth IRAs
In general, RMDs are mandatory withdrawals from traditional IRAs and 401(k) plans that must be taken by individuals once they reach the age of 72 (or 70½ if they turned 70½ before January 1, 2020). However, the rules for RMDs in inherited Roth IRAs are different.
Rules for Beneficiaries of Inherited Roth IRAs
1. Spousal Beneficiaries: If the inherited Roth IRA is passed on to a spouse, the surviving spouse can choose to treat the inherited account as their own. This means that they can delay taking RMDs until they reach the age of 72, or they can take RMDs based on their own life expectancy.
2. Non-Spousal Beneficiaries: Non-spousal beneficiaries, such as children, grandchildren, or other individuals, are required to take RMDs from the inherited Roth IRA. The RMDs must begin in the year following the year the original account holder passed away.
3. Life Expectancy: Non-spousal beneficiaries must calculate their RMDs based on their life expectancy. This is determined by the IRS Single Life Expectancy Table, which provides a factor for each year the beneficiary expects to live.
4. Contribution vs. Earnings: It’s important to note that RMDs from an inherited Roth IRA are calculated based on the account’s value at the time of the original account holder’s death. Unlike traditional IRAs, Roth IRAs do not have required minimum distributions during the account holder’s lifetime, so the RMDs are calculated based on the account’s earnings, not contributions.
Considerations for Beneficiaries
When deciding whether or not to take RMDs from an inherited Roth IRA, beneficiaries should consider the following:
1. Tax Implications: RMDs from inherited Roth IRAs are taxed as ordinary income, which may be a significant consideration for some beneficiaries.
2. Financial Needs: Beneficiaries should assess their financial needs and determine if taking RMDs will help them meet their goals.
3. Investment Strategy: Beneficiaries may want to consider the investment strategy of the inherited Roth IRA and whether taking RMDs will impact the account’s performance.
In conclusion, while beneficiaries of inherited Roth IRAs are generally required to take RMDs, the rules and regulations surrounding these distributions can vary depending on the relationship between the original account holder and the beneficiary. It’s important for beneficiaries to consult with a financial advisor or tax professional to ensure they understand their options and make informed decisions regarding RMDs from inherited Roth IRAs.
