inherit Roth

[GillieGG]

I'm going to inherit a Roth IRA in 2025. I'm 45 years old. What will my tax liability be next year?

[MonikaK1]

It depends on whether you withdraw any of the funds in 2025, and your relationship to the person from whom you are inheriting the account. There is no tax consequence of inheriting the account until you withdraw from it.

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.

Generally, inherited Roth IRA accounts are subject to the same Required Minimum Distribution (RMD) requirements as inherited traditional IRA accounts.

The factors that affect the distribution requirements for inherited retirement plan accounts and IRAs include:

• Whether the account owner died after 2019 (the SECURE Act made changes to the RMDs for beneficiaries if the death of the account holder occurred after 2019).
• The relationship of the beneficiary to the account owner and certain characteristics (spouse, minor child, disabled or chronically ill individual, entity other than an individual)
• Whether the original account owner died before or after their required beginning date (the first date the original account owner was required to begin taking RMDs).

See this IRS article and this TurboTax Blog for more information. 

[GillieGG]

Thanks for reply. So being 45 years old will I get a 10% penalty for withdrawing money. The Roth IRA was my grandparents and held more than 5 yrs.

[DianeW777]

No, you will not be subject to the 10% penalty if you withdraw from the account based on the following rules.

Designated beneficiary (not an eligible designated beneficiary) If you are greater than 10 years younger than your grandparents, follow this:

• Follow the 10-year rule

10-year rule: If a beneficiary is subject to the 10-year rule,

• Empty the entire account by the end of the 10th year following the year of the account owner's (or eligible designated beneficiary's) death

Non-spouse beneficiary options

In 2020 and later, options for a beneficiary who is not the spouse of the deceased account owner depend on whether they are an "eligible designated beneficiary." An eligible designated beneficiary is

• Spouse or minor child of the deceased account holder
• Disabled or chronically ill individual
• Individual who is not more than 10 years younger than the IRA owner or plan participant

An eligible designated beneficiary may (this may not be you depending on the age of your grandparents)

• Take distributions over the longer of their own life expectancy and the employee's remaining life expectancy, or
• Follow the 10-year rule (if the account owner died before that owner's required beginning date)