By Sarah Brenner, JD
Director of Retirement Education
QUESTION:
I understand that the SECURE Act 10-year payout rule applies to certain beneficiaries. I also understand that, if the IRA owner died after his required beginning date (RBD), annual required minimum distributions (RMDs) must be taken during the 10-year period. My question is whether we use the life expectancy of the IRA owner or the beneficiary to calculate these RMDs?
Thank you,
Bill
ANSWER:
Hi Bill,
You are correct that annual RMDs must be taken during the 10-year payout period when the IRA owner dies after the RBD. Those annual RMDs are based on the beneficiary’s life expectancy.
QUESTION:
First, you all are fantastic, and I appreciate your insights and information.
My question relates to the beneficiaries of a Roth IRA.
If the IRA owner completes a conversion to her first Roth account and dies before the five-year holding period is over, do the beneficiaries have any problems with receiving the earnings in their inherited Roth account tax free?
Thank you,
Tom
ANSWER:
Hi Tom,
Thanks for the kind words!
There is good and bad news when it comes to inherited Roth IRAs and the five-year holding period for qualified tax-free distributions of earnings. The bad news is that the holding period does apply to inherited accounts. The good news is that it starts with the Roth IRA owner’s first contribution. It does not restart for the beneficiaries. The beneficiaries would need to wait out whatever is left of the Roth IRA owner’s five-year holding period, but after that all earnings would be tax free.
If you have technical questions you would like to have answered, be sure to submit them to [email protected], to be answered on an upcoming Slott Report Mailbag, published every Thursday.