Distribution Rules at Death of Owner

Distribution rules at death of owner of Roth IRAs are discussed in this section of Roth IRAs information website. Distribution rules at death of owner of a Roth IRA are very similar to the distribution rules at death of owner of a traditional IRA.

What are the rules for distributions after the Roth IRA owner 's death?

Distribution rules at death of owner or a Roth IRA states that if a Roth IRA owner dies, the same Roth IRA minimum distribution rules apply that apply to a traditional IRA owner who dies before age 70½.

Since the required minimum distribution rules or the at 70½ distribution rules do not apply to a Roth IRA, the minimum distribution requirements for a beneficiary are applied as if the Roth IRA owner died prior to age 701/2, regardless of when the owner actually died.

Generally, the entire interest in the Roth IRA must be distributed either

(1) by the end of the fifth year after the year of death (the 5 year rule) or

(2) over the life expectancy of the designated beneficiary.

What is the income tax treatment of distributions to a Roth IRA beneficiary?

In general, the same rules apply that would have applied to the owner. Thus, qualified Roth IRA distributions and distributions that are a return of regular Roth IRA contributions will not be subject to income tax.

Roth IRA distributions that are not qualified Roth IRA distributions are generally includible in the beneficiary's gross income in the same manner as they would have been included in the owner's income had they been distributed to the Roth IRA owner when he or she was alive.

Example 1:

A Roth IRA owner dies 5 years after the year of the first Roth IRA contribution. None of the earnings attributable to the Roth IRA distributions will be subject to tax since they are qualified Roth IRA distributions (5 years and made after death).

Example 2:

A Roth IRA owner dies within 5 years after the date of the first Roth IRA contribution. All of the earnings attributable to the Roth IRA distributions are subject to tax to the beneficiary since they are not qualified distribution. The 10% penalty does not apply because of the death exception.