Does an Inherited Roth IRA have required minimum distributions? YEP!!

April 13, 2015 - Posted by: admin - In category:

taxes - No Responses

We all know that there is never an RMD for a Roth IRA, right? Wrong!

Contrary to popular belief, a Roth IRA can be subject to the “required minimum distribution” rules–namely when such an IRA account becomes an inherited IRA. Before going any further, perhaps we should first step back and deal with the basic question of what the heck is the concept of a “required minimum distribution” anyway? Great question. In short, the IRS will not permit you to forever avoid paying taxes on your retirement accounts, so there are rules around when and how you (or your beneficiary) must eventually start taking money out of the retirement account and, depending on the type of account (i.e. traditional or Roth), also start paying income tax on such distributions in the process. For the official word from the IRS on required minimum distribution (also known as “RMD”), please see the IRS website on the same topic (click here to go to that page).

So, now that we have the RMD basics out of the way, let’s deal with the “common knowledge” that RMD rules apply only to traditional IRA accounts and not to Roth IRA accounts. While that is generally a true statement with regard to an account owner (i.e. an owner of a Roth IRA will never have an RMD during his or her life), that statement is NOTtrue if and when such a Roth IRA becomes an inherited IRA. Rather, the “free pass” for a Roth IRA that is available for the original owner of such a Roth IRA goes away when such Roth IRA is passed to a beneficiary of the same following the death of the account owner.  At that time, the inherited Roth IRA becomes subject to RMD rules, similar to RMD rules applicable to inherited non-Roth IRA accounts. If you want to read more about this concept of RMD for an inherited Roth IRA, just google “RMD for inherited Roth IRA”. You can also click here to read an article on that very subject.As with all things related to Roth IRAs, non-Roth IRAs and all other retirement account issues, please consult with a licensed and competent financial adviser about this subject and all related issues.

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