Although not meeting the 5 year rule, Equity positions purchased are currently at a loss - with this, would that be considered taxable income if I took an RMD? If I liquidate?
Prior to 2017, you could claim a loss on the liquidation of a Roth IRA. However, with the TCJA that is no longer the case.
For an inherited Roth IRA, If the original owner dies before the five-year period has elapsed, you can satisfy the holding period by rolling the account over into an inherited Roth IRA and waiting until the holding period has passed.
Click this link for more info on Inherited IRA's and Retirement Accounts.
Although Roth IRAs have no mandatory distribution requirements for the original owners, heirs must either withdraw all funds within five years of the original owner’s death or take annual minimum withdrawals over their lifetimes.
If you liquidate the account, there are no tax consequences since the amount will be less than the original contributions.
If you take partial distributions, the income will be taxable since the 5-year rule has not been met.
[Edited 12/30/2021 12:32 pm]
rolling the account over into an inherited Roth IRA
The custodian will retitle your Roth IRA when you come forward to verify your identity, if this hasn't happened already. There is no rollover involved.
I think you did not answer the actual question.
You may close the account without penalty. Even if you are within the 5 year period, you may withdraw up to the account basis (the original after-tax contributions) without penalty. If the amount needed to withdraw to close the account is less than the original owner's contributions, there is no penalty to withdraw the contributions and close the account.
Thank you Opus17 - you did answer the question. I thought similar fundamental rules (as if I had started the account) would apply with regards to withdrawals of original contributions, but wanted to confirm given this is my first experience with an inherited/FTBO titled account.
thanks again!
Mike
there's no reason to close an inherited Roth that had poor results.. You can do better.
put the money into stocks that are going up, not down.
Because this is an inherited IRA, it must be closed within 10 years. It can’t be kept for the taxpayer’s own retirement. The only question is to withdraw the money now, or to change investments and hope to recoup more of the original contributions within the 10 year window. Perhaps the taxpayer thinks they have a better use for the funds now.
@fanfare wrote:
10 years is a long time in the stock market.
Yes, but as I said, the taxpayer may have some other use for the money. For example, suppose the contributions were $10,000 and the current value is $5,000. The account might regain its value (or more) over 10 years, depending on how it is invested. But, the taxpayer might believe they have a higher priority use for the $5,000 now. Most financial experts would say that to build wealth, the taxpayer should leave the money in the tax-deferred account as long as possible. But the taxpayer may have other priorities.