Missed deadline could limit inherited Roth IRA’s benefits

Dear Liz: I inherited my brother’s Roth IRA about three years ago. I find it hard to get any information about non-spousal inherited Roths. Can you tell me more about this type of Roth IRA?

Answer: It may be unfortunate that you didn’t ask sooner.

When a spouse inherits a Roth IRA, he can roll it into his own Roth IRA, and it’s as if he or she was the owner of the inherited funds all along. There’s no minimum distribution requirement, so the money can continue to grow.

If you’re not a spouse, you have the option of transferring it into an account titled as an inherited Roth IRA. You also have the option of taking distributions over your lifetime — which means keeping the bulk of the money growing for you tax-free — but to do that you must begin taking required minimum distributions by Dec. 31 of the year after the year in which the owner died.

If you didn’t start these required distributions on time, you have to withdraw all the assets in the account by Dec. 31 of the fifth year after the year your brother died, said Mark Luscombe, principal analyst for CCH Tax & Accounting North America. You won’t have to pay taxes on this withdrawal, but it would have been better to let the money continue to grow tax-free in the account.

Related Posts

  • Tax bills for inherited IRAs Dear Liz: I am 64. My grown children, ages 23 and 25, are the beneficiaries of my retirement accounts. I have a Roth IRA, a SIMPLE IRA and […]
  • Monday’s need-to-know money news Today's top story: What to do if your home insurer won't renew your policy. Also in the news: A new episode of the SmartMoney podcast on […]
  • Q&A: Different Roths, different rules Dear Liz: I have a Roth 401(k). Are withdrawals from it the same as from a Roth IRA? And how do I move it to a Roth IRA? Answer: Roth […]
  • Tuesday’s need-to-know money news Today's top story: A Roth IRA could help you avoid taxes like the ultrawealthy. Also in the news: How one DUI can nearly double your car […]