If My Kids Inherit My Roth IRA, Will it be Tax-Free?

Someone once asked: I have had a Roth IRA for over 5 years now. When I die, my wife becomes the beneficiary of that Roth, and she can withdraw money from it whenever she likes, tax-free. My two adult children will receive Roths if I die and my wife predeceases me. When my account is liquidated soon after I die, what happens?

An expert replied…

Roth IRAs allow your heirs to inherit tax-free assets.

According to AL, Neil Becourtney, a certified public accountant and tax partner with CohnReznick in Holmdel, confirmed that your children will be entitled to the nontaxable treatment of distributions from your Roth IRA.

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“The 10-year time frame you refer to is the requirement that your children receive full distributions of any inherited IRA by Dec. 31 of the year containing the tenth anniversary of the IRA owner’s death,” he expressed.

“Only a minor child can stretch out inherited IRA distributions over their life expectancy.”

Your children are not prohibited from receiving your entire IRA after your death, he said. They will not be taxed on the distributions.

“The major difference in receiving distributions from the Roth IRA shortly after the decedent’s death, compared with delaying it for ten years, is that the beneficiaries will be giving up years of tax-deferred growth,” Becourtney explained.

“Distributions shortly after death, if invested, will give rise to taxable income unless invested in tax-free municipal bonds.”

Beneficiaries’ cash flow needs can override any tax implications of delaying distributions, he explained.

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