Inherited Roth IRA MRD

[000000000000]

I have an inherited (in 2022) Roth IRA. My understanding is that I do not have to make any distributions from it for 10 years and can take out 100% 1 day before 10 years after the date of death. Is that right? My brokerage implies I need to take MRDs now.

[MarilynG1]

The passage of the SECURE Act changed how the distribution time period is determined for an inherited IRA.  If your loved one died in 2020 or later, then you don't have to take required minimum distributions, or RMDs, but you need to withdraw the entire amount of the IRA within 10 years.

Are you a Designated Beneficiary?  Here's more info on Designated/Non-Designated Beneficiaries of Roth IRA's. 

@000000000000 

[girishapte]

Sorry for your loss in 2022.

I verified with Schwab IRA department the same thing just two weeks ago: No RMD is required during the ten years, must deplete by end of period. My situation was as a non-designated bene, inherited in 2023, decedant's account was at least 5-years old.

Some potentially useful info: You might want to check with the brokerage/custodian what transaction code will be applied to the 1099-R when you take a distribution.  If the code is "T", then it implies that the funds had not met the 5-year holding period, and has tax implications.  The brokerage/custodian should research the history of the decedent's account and verify that the funds had met the 5-year holding period.  If well-aged, the transaction code is supposed to be "Q".

Schwab defaulted my Inherited Roth IRA's code to T when I opened the account, and did not change it to Q when funds were transferred from the decedent's account.  When I spoke to them about the same question you asked (RMD each year or not) and how my first distribution would be reported, that's when I recognized that the T would cause me problems.  Schwab quickly researched the decedent's account (was also at Schwab), saw that funds were well-aged, and changed the coding on my account.

Would appreciate if TT expert could confirm/correct the above. And apologies if warranted for butting in 🙂

[AmyC]

Yes, if you are under the 10 year rule, no distributions are required on a yearly basis but must all be withdrawn by the end of the 10 years after passing. 

The ROTH IRA withdrawal has the same tax basis to you as it did to the person you inherited it from, so making sure it meets the "held for 5 year" rule is important.

From Retirement topics - Beneficiary | Internal Revenue Service:

Definitions

5-year rule: If a beneficiary is subject to the 5-year rule,

• They must empty account by the end of the 5th year following the year of the account holders' death
• 2020 does not count when determining the 5 years
• No withdrawals are required before the end of that 5th year

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
• Relief under Notice 2022-53 for beneficiaries subject to the 10-year rule
  • The IRS will not treat a beneficiary of an inherited account in a plan or IRA who was subject to the 10-year rule and who failed to take an RMD for 2021 and 2022 as having failed to take the correct RMD

Publication 590-B (2022), Distributions from Individual Retirement Accounts.

[000000000000]

Well, this is the confusing part. You cite:

• Relief under Notice 2022-53 for beneficiaries subject to the 10-year rule
  • The IRS will not treat a beneficiary of an inherited account in a plan or IRA who was subject to the 10-year rule and who failed to take an RMD for 2021 and 2022 as having failed to take the correct RMD

But how could anybody subject to the 10 year rule fail to take 2021 RMDs? The SECURE act was established in 2019, so in 2021 nobody subject to 10 year rule had to take RMDs yet. The 10 years have not passed.

Something does not match here. What am I missing?

[girishapte]

There was confusion after SECURE and the IRS apparently incorrectly notified people with inherited Roths that they failed take a RMD.  The 2022-53 notice was IRS formally clarifying the situation.  This is what my Schwab advisor told me.

[AmyC]

I should not have copied the entire law since the last part is confusing and was made to clear the air with COVID. Since that was before your inheritance, it doesn't affect you. My apologies for the confusion.