Every year, I receive numerous phone calls from clients who have been named as Roth IRA beneficiaries of a deceased loved one. Roth IRA is a special type of IRA for retirement savings. Some advantages of the Roth IRA are that after 59 1/2 years there are no withdrawal requirements, and withdrawals are tax-exempt, including earnings on Roth IRA assets.
There are various revenues and other requirements to determine who is allowed to establish and contribute to the Roth IRA. If you meet these requirements, a Roth IRA may be a necessary investment in your asset portfolio. In addition, you are allowed to appoint a user who will also be able to withdraw tax-free income tax in most cases. If you are the only Roth IRA user, what are your options?
The answer to this question depends on whether you are the spouse of the deceased owner of the Roth IRA or you are not the spouse of the deceased owner of the Roth IRA. There are different rules, depending on whether you are a spouse or not. In this article, we will discuss the possibilities of a spouse today.
If you are the spouse of a deceased person, you have different options. The simplest option is to request a lump sum allocation from the Roth IRA. Earnings and overall distribution should not be taxable One option is a lump sum distribution in which all assets in the Roth IRA can be distributed to you, and earnings will not be taxable until your spouse first contributed more than five years ago.
Alternatively, you can treat the Roth IRA as your Roth IRA. So you will be subject to various distribution rules as if the Roth IRA is yours from the start. These distribution rules include that you can withdraw contributions at any time and that Roth IRA earnings will not be taxable as long as you are over 59 1/2 years old and at least five years have passed since your spouse founded the Roth IRA. You should name a user.
Finally, you could create a Roth IRA as an inherited Roth IRA. With an inherited Roth IRA, you will be required to submit the required minimum allocations, but you can defer those allocations until you reach the age of 72, or December 31 of the year following the year your spouse passed away. This method of distribution will spread throughout your life. Previous contributions can be withdrawn at any time, and earnings will not be taxed until your spouse first contributed to the Roth IRA at least five years ago, and the property will continue to grow tax-free and you need to identify the beneficiary.
Therefore, if you are a Roth IRA beneficiary owned by your spouse, be sure to contact your investment advisor to discuss your options regarding inheriting your spouse’s Roth IRA.
NOTE: This general summary of the law should not be used to address individual issues as small changes in the facts may require significant differences in applicable legal advice.
Attorney James F. Contini II is a Certified Real Estate Planning Specialist, Trust and Inheritance Property Act by OSBA. He is with Krugliak, Wilkins, Griffiths & Dougherty Co. LPA in New Philadelphia.