What happens to my Roth IRA when I die?
Any amounts remaining in your Roth IRA at your death will be paid to your beneficiary(ies).
How are distributions to my beneficiary(ies) taxed?
Beneficiaries must ensure the five-year holding period has been satisfied to receive tax-free qualified distributions. Your five-year period carries over to your beneficiaries (i.e., the five-year waiting period is not “re-set” upon your death). The period begins January 1 of the first year for which you made a Roth IRA contribution, a conversion or an employer-sponsored retirement plan rollover to any Roth IRA you own.
Distributions to your beneficiary(ies) within the five-year holding period for qualified distributions are only taxed if the distribution represents the return of Roth IRA earnings. See “What are the Roth IRA ordering rules?” for more information on the distribution of Roth IRA earnings. The 10 percent early distribution penalty tax does not apply to any beneficiary distributions from your Roth IRA after your death.
How quickly must my beneficiary(ies) withdraw my Roth IRA assets?
Although your Roth IRA plan documents may specify how quickly your beneficiary(ies) must take distributions from your Roth IRA, when you die, your beneficiary(ies) may generally choose to deplete your Roth IRA by the end of the fifth calendar year following your death or to receive payments each year based on life expectancy.
Your Roth IRA must be distributed by the end of the fifth calendar year following your death, if your beneficiary is not an individual (e.g., a charity, your estate, etc.).
To determine the beneficiary distribution options available to your beneficiary(ies), contact your IRA trustee/custodian or your financial advisor.
If my beneficiary chooses the life expectancy payment option, when must distributions begin?
If life expectancy payments are elected, the payments must generally begin by December 31 of the first calendar year following your death. If your surviving spouse is your sole designated beneficiary, he or she may delay the first distribution until December 31 of the year you would have attained age 70½, if later.
Can my beneficiar(ies) move my Roth IRA into a Roth IRA of his/her own?
Your surviving spouse may move your Roth IRA into a Roth IRA of his/her own. Options for moving your Roth IRA to your spouse’s own Roth IRA may include a transfer, rollover or redesignation of the Roth IRA.
A nonspouse beneficiary cannot move your Roth IRA into a Roth IRA of his/her own.
Does the five-year waiting period for qualified distributions re-set for beneficiaries when the Roth IRA owner dies?
No. When your beneficiary inherits your Roth assets, your beneficiary also inherits your five-year waiting period as it relates to qualified distributions from that inherited Roth IRA. In other words, the five-year waiting period is determined independently of the five-year period for the beneficiary’s own Roth IRAs.
However, if your surviving spouse treats the inherited Roth IRA as his or her own, the five-year period for qualified distributions with respect to any of your surviving spouse’s Roth IRAs (including the one that your surviving spouse treats as his or her own) ends at the earlier of the end of either your five-year period or the five-year period applicable to your spouse’s own Roth IRAs.
What if my beneficiary(ies) fails to take a required distribution?
If your beneficiary(ies) fails to withdraw the required amount in any tax year, he or she may be subject to a 50 percent excess accumulation penalty tax on the amount that should have been withdrawn but was not distributed.