Do Inherited Roth IRA Beneficiaries Have RMDs?: Today’s Slott Report Mailbag

By Ian Berger, JD
IRA Analyst

QUESTION:

I really enjoy reading the Slott Report articles, but I’m confused about the inherited Roth IRA required minimum distributions (RMD) explanations. My understanding was Roth IRAs do not have RMDs even when inherited. Am I mistaken?

Thanks,

Donald

ANSWER:

Hi Donald,

There’s lots of confusion over this issue. Roth IRA owners do not have RMDs while they are living, but beneficiaries of inherited Roth IRAs do have RMDs. Further confusion results because only Roth IRA beneficiaries who are “eligible designated beneficiaries” and elect to stretch RMDs have annual RMDs. Roth IRA beneficiaries who are “non-eligible designated beneficiaries” are subject to the 10-year payout rule, but they do not have annual RMDs in years 1-9 of the 10-year period. However, they must empty the inherited account by the end of the 10th year following the year of death, and this 10th-year distribution is considered their RMD.

QUESTION:

I am age 85. Would it make sense to convert my IRA (worth $1.3 million) to a Roth IRA at this late stage, or am I too old to convert?

I have four children, two of whom are on Social Security Disability Insurance (SSDI). Would the children on SSDI still have to follow the 10-year rule?

Thank you.

ANSWER:

There are no age restrictions for doing Roth conversions. Many older IRA owners choose not to do conversions because there may not be enough time for the tax-free accumulation to offset the additional taxable income resulting from the conversion. However, others who wish to leave a tax-free inheritance to children or grandchildren may find a Roth conversion beneficial at any age. IRA beneficiaries who are “disabled” are “eligible designated beneficiaries” and can therefore stretch RMDs over their life expectancy instead of being subject to the 10-year rule. Beneficiaries on SSDI are automatically considered “disabled.”

If you have technical questions you would like to have answered, be sure to submit them to mailbag@irahelp.com, to be answered on an upcoming Slott Report Mailbag, published every Thursday.