In 2020, the SECURE Act completely changed the game for nonspouse IRA beneficiaries. Now, most are subject to the 10-year payout rule. Recently released final RMD rules keep the controversial proposed rule that requires many beneficiaries subject to the 10-year rule to also take annual required minimum distributions (RMDs) during the 10-year period.
Here is some good news if you are inheriting a Roth IRA. This confusing and burdensome requirement of annual RMDs during the 10-year period will not apply to you.
Here’s why. The requirement to take annual RMDs during the 10-year period only applies when the IRA owner died on or after his required beginning date (RBD). The RBD is date by which RMDs must begin. For IRA owners, this would be April 1 of the year following the year the individual reaches age 73. Roth owners, however, are not subject to lifetime RMDs. Therefore, they have no RBD. So, every Roth IRA owner is deemed to have died before their RBD, regardless of their age at death. For example, a Roth IRA owner who dies at age 100 is still deemed to have died before her RBD.
Under the new final RMD rules, beneficiaries of traditional IRAs who are subject to the 10-year rule must take annual RMDs in years 1-9 of the 10-year period when death occurs on or after the RBD. But this is not the case for a Roth IRA beneficiary, since all Roth IRA owners are considered to have died before their RBD.
This can allow the inherited Roth funds to continue to accumulate income tax free for the full 10-year term. This is a huge advantage for Roth IRA beneficiaries. The full balance of the inherited Roth must still be withdrawn by the end of the 10th year after death, but nothing has to be taken any earlier. The entire balance can then be withdrawn as a completely tax-free distribution.
Example 6: Miguel, age 80, dies in 2024. The beneficiary of his Roth IRA is his daughter, Madi, age 50. Madi will be subject to the 10-year rule, so the entire inherited Roth IRA must be distributed by December 31, 2034. However, she does not have to take annual RMDs during the 10 years.
Specializing in private wealth management, we provide education, guidance, and strategies to help you achieve a tax-efficient retirement income.
Specializing in private wealth management, we provide education, guidance, and strategies to help you achieve a tax-efficient retirement income.
Investment advisory services offered through Donato Wealth Management, PLLC, dba Empower Wealth Management and Empower Wealth & Tax (“Empower Wealth Management” or “EWM”),
an SEC registered investment adviser that only conducts business in jurisdictions where it is properly registered, or is excluded or exempted from registration requirements. Registration as an investment adviser is not an endorsement of the firm by securities regulators and does not mean the adviser has achieved a specific level of skill or ability. The firm is not engaged in the practice of law or accounting.
The information presented is believed to be current. It should not be viewed as personalized investment advice. All expressions of opinion reflect the judgment of the authors on the date of publication and may change in response to market conditions. You should consult with a professional adviser before implementing any strategies discussed. Content should not be viewed as an offer to buy or sell any of the securities mentioned, or as legal or tax advice. You should always consult an attorney or tax professional regarding your specific legal or tax situation. Personal investment advice can only be rendered after the engagement of EWM, execution of required documentation, and receipt of required disclosures. All investment and insurance strategies have the potential for profit or loss. Asset allocation and diversification will not necessarily improve an investor’s returns and cannot eliminate the risk of investment losses. Past performance is no guarantee of future results. For more information, please go to https://adviserinfo.sec.gov and search by our firm name or by our CRD #305031.
Insurance products and tax services are offered through Senior Tax and Insurance Advisors, PLLC, dba Empower Wealth Group (“Empower Wealth Group” or “EWG”). Any comments regarding safe and secure investments and guaranteed income streams refer only to fixed insurance products. They do not in any way refer to investment advisory products offered through EWM. Rates and guarantees provided by insurance products and annuities are subject to the financial strength of the issuing insurance company; not guaranteed by any bank or the FDIC. EWG is not affiliated with or endorsed by the U.S. Government, Social Security Administration, nor the federal Medicare program. You may be contacted by a licensed insurance agent. Calling the number above will direct you to a licensed insurance agent. EWG may not offer every plan available in your area. Any information provided is limited to plans available in your area. Please contact Medicare.gov or 1-800-MEDICARE.
EWM and EWG are both affiliated companies of Empower Wealth, LLC (“Empower”). Investment adviser representatives of EWM may have a financial incentive to recommend tax and insurance products and/or services offered through EWG which presents a conflict of interest. This conflict is addressed by EWM’s adoption of its Code of Ethics, which requires that all EWM’s Associated Persons place the interest of clients ahead of their own. Clients of EWM are also free to choose their own tax and/or insurance professionals and are under no obligation to utilize the services offered through any related entities or persons associated with Empower.
Strategic Partners listed on this page are not employees of EWM and are not affiliated through common ownership.
We do not offer every plan available in your area. Any information we provide is limited to those plans we do offer in your area. Please contact Medicare.gov or 1-800-MEDICARE to get information on all of your options.
© Empower Wealth Management All Rights Reserved.
