Inherited Roth IRAs

When coordinating retirement savings with estate planning, there are special rules regarding IRAs and estate taxes.

Qualified distributions from a Roth IRA are not subject to tax. A distribution made to a beneficiary or to the Roth IRA owner's estate on or after the date of death is a qualified distribution if it is made after the five-taxable-year period beginning with the first tax year in which a contribution was made to any Roth IRA of the owner.

Generally, the entire interest in the Roth IRA must be distributed by the end of the fifth calendar year after the year of the owner's death unless the interest is payable to a designated beneficiary over his or her life or life expectancy. If paid as an annuity, the distributions must begin before the end of the calendar year following the year of death. If the sole beneficiary is the decedent's spouse, the spouse can delay the distributions until the decedent would have reached age 70-1/2 or can treat the Roth IRA as his or her own Roth IRA.

A portion of a distribution to a beneficiary that is not a qualified distribution may be includible in the beneficiary's gross income. Generally, the portion includible in income is the earnings in the decedent's Roth IRA. Earnings attributable to the period ending with the decedent's date of death are income in respect of the decedent. Additional taxable amounts are the income of the beneficiary.