Inherited Roth IRA Tax Rules

Inherited Roth IRA Tax Rules
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If you inherit a Roth IRA, the rules are the same as inheriting a traditional IRA before the owner begins taking distributions. Withdrawals by beneficiaries are required except for surviving spouses.

Spouse Beneficiary

A spouse may delay distributions from an inherited Roth IRA. A spouse must start taking distributions in the year that the decedent would have reached age 70½. Alternatively, a spouse may treat the inherited Roth IRA as her own or roll it into her own Roth IRA.

Non-spouse Beneficiary

Non-spouse beneficiaries must withdraw the entire inherited Roth IRA within five years or begin taking immediate annual distributions based upon their life expectancy. If withdrawals do not begin in the first year after the death of the Roth IRA's owner, the five-year period is designated for distribution of the entire account. A 50 percent excise tax is assessed for failure to make required withdrawals.

Taxable Withdrawals

If the Roth IRA owner dies before the account has been established for five years, the withdrawals by beneficiaries are taxable. Distributions from a Roth IRA are non-taxable if the five-year period is met. A separate five-year holding period is established for each rollover to the Roth IRA from a traditional IRA or an employer retirement plan.