![]() Simply checking the wrong box on a form could cost you a large percentage of your inheritance-no fun. If nothing else, a trusted financial planner can help take some of the stress out of all the choices, you are forced to make when you least want to think about anything financial. If that person offers tax planning (most advisors don't), they can also help you make the most of your inheritance by guiding you to options that minimize taxes. Your trusted financial planner can help guide you through this difficult time. This is why keeping your retirement account beneficiary designations up to date is so important. You will have five years to withdraw all funds from the inherited Roth IRA. The amount determined to be taxable will then go on your Form 1040 (or 1040-SR) on line 4B for 'Retirement Distributions. You will use IRS Form 8606 to determine the taxable portion of the Roth distribution. ![]() ![]() If you receive Roth IRA funds via probate or will, your time to withdraw all funds is cut in half. Reporting Roth IRA Distributions Sometimes, distributions from a Roth IRA may be taxable as income on a Form 1040 or 1040-SR tax form. The inherited Roth IRA rules listed above only apply if you receive your inheritance as a listed beneficiary of the deceased person’s Roth IRA. Heres what you need to know before filling out the form. The Five-Year Inherited Roth IRA Distribution Rule IRA trustees use Form 5498 to report any contributions youve made to the IRS. Beneficiaries in other exception categories (children, disabled, or beneficiaries not more than 10 years younger than the decedent) will still be allowed to take RMDs based on their life expectancies. If you are a beneficiary and fit into one of these exception categories, you will not be forced to completely withdraw the inherited Roth IRA funds based on the 10-year rule. Exceptions include a surviving spouse, a disabled or chronically ill person, a child who has not yet reached the age of majority, and a beneficiary who is not more than 10 years younger than the decedent. There are several exceptions to the 10-year rule for several types of beneficiaries. This is where working with a tax-planning expert can be extremely valuable. Important Exceptions To The Inherited Roth IRA 10-Year Rule This new 10-year rule applies regardless of the decedent’s age and whether or not the decedent was taking RMDs. Remember, this is based on the date of death, not when you received the IRA funds. This applies to all IRA inheritances after January 1, 2020. The SECURE Act requires the entire balance of an inherited IRA to be withdrawn within 10 years of the original owner’s death. It also dramatically changed the RMD rules for the inherited Roth IRA. ![]() Most famously, this pushed the IRA RMD beginning date from 70.5 to 72 years old. You may or may not have heard of the Setting Every Community Up for Retirement Enhance Act of 2019, more commonly known as the SECURE Act. getty New SECURE Act Rules For Inherited Roth IRAs fiduciary financial planner to ensure you make the most of your inheritance. The risk of making a costly mistake with an Inherited ROTH IRA are high. ![]()
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