Roth Beneficiaries Converted IRA

Forum|Forum|5 years ago
November 11, 2020
2 replies
28 views

If a conversion is done from an IRA to Roth, and the owner dies in under 5 years from the conversion being done, does the non-spouse beneficiary have to pay a penalty?

macuser_22

Alumni - Champ

See IRS Pub 590B https://www.irs.gov/publications/p590b#en_US_2019_publink1000231084

Under Distributions to beneficiaries.

Distributions that aren't qualified distributions.

If a distribution to a beneficiary isn't a qualified distribution, it is generally includible in the beneficiary's gross income in the same manner as it would have been included in the owner's income had it been distributed to the IRA owner when he or she was alive.

If the owner of a Roth IRA dies before the end of:

The 5-year period beginning with the first taxable year for which a contribution was made to a Roth IRA set up for the owner's benefit, or
The 5-year period starting with the year of a conversion contribution from a traditional IRA or a rollover from a qualified retirement plan to a Roth IRA,

**Disclaimer: This post is for discussion purposes only and is NOT tax advice. The author takes no responsibility for the accuracy of any information in this post.**

dmertz

Level 15

The question was whether there would be any penalty. Distributions to a non-spouse beneficiary of an inherited IRA, traditional or Roth, are never subject to an early-distribution penalty.

macuser_22's reply instead answers the question as to whether or not the distribution to the beneficiary would be a qualified distribution. Until it has been at least 5 years since the beginning of the year for which the decedent first made a contribution to a Roth IRA, any distribution of earnings accrued within the Roth IRA are taxable. Earnings come out last, so this is generally not a problem since the earnings are not required to be distributed before the 5-year period is met.