Is an inherited Roth IRA part of the basis in your Roth IRAs?

[SPQ]

I inherited a modest Roth IRA.  When TT asks for the value of my Roth accounts as of the end of the year, should that inherited year-end amount be included?  Is the entire inherited amount transferred to me part of my basis?

Thanks for any insight.

[KrisD15 · Accepted solution]

No, an inherited Roth IRA needs to be handled separately form your own Roth IRA and depends if you are the spouse or someone else. Don't add he balances together. 

TurboTax asks about your Roth balance as a curtesy, it is not needed for your tax return. 

HERE is a TurboTax link with more information.

[SPQ]

@KrisD15

Thank you for answering, but could you please check that link?  I don't see anything on that page about inherited IRAs.  Further info:  I'm a child of the deceased, not disabled, not young, and I know I need to take it out within 10 years of the year the parent died.  I just want to get the reporting right.

[Opus 17]

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@SPQ wrote:

@KrisD15

Thank you for answering, but could you please check that link?  I don't see anything on that page about inherited IRAs.  Further info:  I'm a child of the deceased, not disabled, not young, and I know I need to take it out within 10 years of the year the parent died.  I just want to get the reporting right.

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It's a general link about why Turbotax asks about Roth IRAs.

However, the answer is correct.  Any kind of inherited IRA is kept separate and not included when performing calculations relating to your own IRAs. 

[Corrected, see below]

Also note, starting in 2025, you may be required to take an RMD from the Roth IRA.  The withdrawal will not be taxable but it must be taken and reported.  Under the SECURE Act (passed in 2020 but the regulations are only taking effect in 2025), you must take an RMD from an inherited Roth IRA if the owner was past their RMD beginning date.  You must also spend out the account within 10 years.  If the owner was not past their RMD beginning date, you do not have to take RMDs, but still must empty the account within 10 years.  The regulations take effect in 2025 and people who did not take RMDs from 2021-2024 will not be penalized even though they were technically required.

Your RMD is based on the single life expectancy table in publication 590-B. 

https://www.irs.gov/publications/p590b#en_US_2023_publink100089977

For example, if the owner was past their beginning age, and you were 50 years old the year after they died, your life expectancy would be 36.2.  In future years, you subtract 1 year, rather than looking up a new life expectancy number  (35.2, 34.2, etc.).  So your RMD for 2025 would be the ending balance on 12/31/2024 divided by your life expectancy number calculated as I described.  

[Edited to add:]

I am incorrect on the RMD issue.  The IRS says that inherited Roth IRAs follow the same rules as inherited traditional IRAs.  The rule for inherited traditional IRAs is that the beneficiary must take RMDs if the original owner was past their RMD beginning date.  Since Roth IRAs do not have an RMD beginning date, the beneficiary is not required to take an RMD because the original owner was never "past their RMD beginning date" (because there was no such date). 

As a great bureaucrat once said, "technically correct is the best kind of correct."

[SPQ]

Now I'm really flummoxed.  This is a Roth, not a traditional IRA.   Parent died in 2024.  The parent had no RMDs for a Roth.   Also, I've been told by a Fidelity rep, and a sibling was told by a Schwab rep, that we have no RMDs on an inherited Roth, but only the requirement to withdraw everything by the end of 2034.

I've been trying to read IRS Pub. 590-B to see what you are referencing, and am not seeing an RMD requirement in the Roth section.  If you believe you are correct about our having to take an RMD from an inherited Roth in 2025 and subsequent years, could you please tell me specifically where it says that?

Many thanks for your help!

[SPQ]

I may've found the answer.

https://www.irs.gov/retirement-plans/plan-participant-employee/retirement-topics-beneficiary

"Generally, inherited Roth IRA accounts are subject to the same RMD requirements as inherited traditional IRA accounts. Withdrawals of contributions from an inherited Roth are tax free. Most withdrawals of earnings from an inherited Roth IRA account are also tax-free. However, withdrawals of earnings may be subject to income tax if the Roth account is less than 5-years old at the time of the withdrawal."

This is much clearer language than the official IRS publication.

[dmertz · Accepted solution]

"I've been told by a Fidelity rep, and a sibling was told by a Schwab rep, that we have no RMDs on an inherited Roth, but only the requirement to withdraw everything by the end of 2034."

This is correct.  There are no annual RMDs from an inherited IRA that is subject to the 10-year rule because with respect to a Roth IRA, the decedent is deemed to have died before their Required Beginning Date for RMDs (because the participant in a Roth IRA is not subject to RMDs).

[fanfare]

"Generally, inherited Roth IRA accounts are subject to the same RMD requirements as inherited traditional IRA accounts.

How can you say this is much clearer language when the statement is false. ?

The statement is true only if you are ready and able  to apply the obtuse trick of never reaching a Beginning Date with a Roth IRA.

@SPQ 

[dmertz]

@fanfare , that statement made by the IRS is true.  It's not a trick, it is IRS guidance derived from a proper understanding of the tax code.  Be happy that the IRS guidance has made it clear for you.

[Opus 17]

"The answer is technically correct, the best kind of correct."

[SPQ]

Thank you for the correction.  Always refreshing when someone corrects a mistake!  While the IRS webpage is technically correct, the agency could do a MUCH better job of explaining things to folks who are not CPAs.