By Sarah Brenner, JD
Director of Retirement Education
Question:
We have a 16-year-old minor inheriting an IRA from her 40-year-old father.
Is it true that the child will have to take required minimum distributions (RMDs) each year until age 21? Then, at age 21 she will switch to the 10-year rule? Also, she will have to continue taking RMDs every year for 10 years and empty the account in the 10th year?
Thanks,
Jennifer
Answer:
That is exactly right. A minor child of an IRA owner is an eligible designated beneficiary (EDB). She would get the stretch until she reaches age 21. The annual RMDs would be calculated using her single life expectancy. Then, the 10-year rule would apply with the annual RMDs continuing each year. This is true even though her father had not yet reached the age where RMDs would have been required. The IRS took the position in the final RMD regulations that because the minor started taking annual RMDs, these payouts must continue during the 10-year payout period.
Question:
Hello,
I found your article on inherited Roth IRA RMDs very helpful. It clarified that inherited Roth IRAs are not subject to an annual RMD requirement. This matters to me, as I am inheriting a Roth IRA from my grandmother who recently passed away.
I did a lot of reading on this topic and found mention of this same topic on the IRS’s website. The IRS seems to be saying the opposite: “Generally, inherited Roth IRA accounts are subject to the same RMD requirements as inherited traditional IRA accounts.” And the IRS says it again here: “The RMD rules do not apply to Roth IRAs or Designated Roth accounts while the owner is alive. However, RMD rules do apply to the beneficiaries of Roth IRA and Designated Roth accounts.”
It sounds like two opposite answers, but maybe I am misunderstanding. Can you help me understand?
Thank you so much!
Steven
Answer:
This is an area where there is a lot of confusion. It really boils down to how the term “required minimum distribution (RMD)” is used. The confusion comes when the term RMD is misunderstood to only mean an annual distribution requirement. In fact, this term is much broader under the tax rules.
In the tax code, RMDs generally mean any amounts that are required to be taken from a retirement account – not just annual RMDs. Technically, all inherited traditional or Roth IRAs are subject to the RMD rules because distributions must happen at some point. So, even inherited retirement accounts that do not have annual RMDs are still subject to the tax rules’ RMD requirements.
In your situation, the RMD rules will require you to empty your grandmother’s Roth IRA account by the end of the tenth year following the year of death. No annual RMDs will be required during the 10-year payout period, but the payment required in the tenth year is considered an RMD.
If you have technical questions you would like to have answered, be sure to submit them to mailbag@irahelp.com, to be answered on an upcoming Slott Report Mailbag, published every Thursday.
https://irahelp.com/eligible-designated-beneficiaries-and-inherited-roth-iras-todays-slott-report-mailbag/