Let's say I have $300,000 in rollover IRA and I retired today.
1) This $50K can pass down to my heir (tax-free), correct? Correct if itis a non-spouse beneficiary (e.g., your child or relative), your heir's withdrawals from the inherited Roth IRA will be federal income tax-free, provided the Roth IRA has been funded for at least five years before your death.
2) Remaining $250K, I have to meet the annual minimum RMD withdrawal
My heirs can take over the remaining balance after my past.
Do they require to keep withdrawing annual RMD as well? It depends on when you pass away. The rules are complex due to confusion from the SECURE Act, but the prevailing rule for non-spouse beneficiaries is the 10-Year Rule.
3) Heirs must withdraw all remaining IRA balance by 10 years mark after my past? They need to pay "ordinary income tax" within their tax bracket? Yes, but with a potential annual RMD. For non-spouse beneficiaries inheriting the account: If you die BEFORE your RMD (age 73), the heir must empty the account by the end of the 10th year following the year of your death. No annual RMDs are required during that 10-year period. If you die ON or AFTER your RBD (age 73), the heir must continue to take annual RMDs for years 1 through 9, and then must empty the remaining balance by the end of the 10th year. They will pay their ordinary income tax rate.
4) How can I apply to a part of lifetime gift exclusion with the IRA? You cannot apply a gift exclusion. You would first withdraw the money, pay the tax due, if any and then gift the money.
5) Is lifetime gift exclusion subject to tax? If yes, how so? The exclusion determines what is taxable to the recipient. This is the amount you can give to any single person each year without having to file a gift tax return (Form 709). For 2025, this amount is $19,000 per recipient (or $38,000 if your spouse "splits" the gift). Gifts within this limit are tax-free to both you and the recipient and do not use up your lifetime exclusion. Lifetime Gift and Estate Tax Exemption: This is the total amount (as of your death and throughout your lifetime) that you can transfer without incurring the Federal Gift or Estate Tax. This exemption is unified (applies to both gifts during life and assets at death) and is extremely high (for 2024, it is **$13.99 million** per individual. How it works: If you give a gift that exceeds the annual exclusion (e.g., a $50,000 gift), the excess amount ($38,000) is NOT taxed immediately. Instead, it is reported on Form 709 and reduces your $13.99 million lifetime exemption. You only pay a gift tax if you exhaust the entire lifetime exemption amount. The recipient never pays the gift tax.
Hope this helps!
Cindy
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