Sunday, March 15, 2015
In order to make sound financial decisions, you must have a good understanding of the rules. Receiving an inheritance is one of those situations you may have to make decisions that could impact your future finances.
If you inherit a Roth IRA, the options you have are similar to that of a traditional IRA, however, there are some differences in the rules.
Spouses have four choices and non-spouses have three. The difference is that spouses have the option of transferring funds to their own Roth IRA. The other choices available to both spouses and non-spouses are to disinherit the IRA, take a lump-sum distribution, or transfer the funds into another inherited Roth IRA.
For spouses, RMDs must begin by the later of December 31 after the year the original account owner died or the year in which they would have turned 70 ½. Spouses can also elect the five-year option where the entire account must be fully distributed by December 31 of the fifth year after the date of death.
Non-spouses must start the RMDs by December 31 following the year of the account holder’s death or can elect to use the five-year rule. Non-spouses do not have the option to use the year in which the original account holder would have turned 70 ½.
See Kenneth Roberts, 4 Options for Inherited Roth IRAs, Market Watch, March 13, 2015.