One of the most attractive features of a Roth IRA is the ability to control the timing of the eventual required distributions. However,Guest Posting this ability mandates the withdrawals to be made within a prescribed set of rules.
The distribution advantages of a Roth IRA extend beyond the death of the IRA owner. But to make sure the spouse and children can benefit, things have to be set up properly. Here is a summary of the Roth IRA distribution rules at death.
Many people do not like the https://s3.us-east-1.wasabisys.com/are-gold-iras-good/are-gold-and-silver-iras-a-good-idea.html requirement that a traditional IRA must start required minimum distributions (RMDs) at age 70 1/2. Perhaps they don’t need the income yet. Maybe they would just as soon let the IRA continue to grow. In any event, the RMDs are taxable. Depending on the circumstances, they may even make part of Social Security retirement benefits taxable.
RMDs during the life of the Roth IRA owner are not required. If and when income is needed, withdrawals can be made, but there is no IRS requirement.
When the Roth IRA owner dies, RMDs must begin. When they are required to begin and how the distributions are received is a function of several factors.
Your Spouse is the Beneficiary
If your spouse is the sole beneficiary of your Roth IRA, your spouse can make an election to be treated as the owner of your Roth IRA. In this case, RMDs can further be postponed until the spouse’s death.
Note the word “sole” beneficiary, as this is an area where a mistake could inadvertently be made.
For example, let’s say you named your spouse and your children as beneficiaries. The spouse would be prohibited from making the ownership election and RMDs would be required over the life expectancy of the spouse, thus reducing (the spouse could die before their expectancy) or exhausting the Roth IRA balance altogether. So much for your desire to leave part to the children.
If the Roth IRA owner dies before age 70 1/2, the spouse doesn’t have to start the RMDs until the IRA owner would have reached age 70 1/2. Here is another area where the spouse needs to pay attention. If RMDs are not started when required (or less than the required amount is taken out), the penalty tax is a whopping 50% of the difference between what was required and what was withdrawn.
If your desire is to extend the RMDs all the way to the death of your spouse, here is another “heads up”. Let’s say you named a trust as the beneficiary of your Roth IRA. Even if your spouse is the sole beneficiary of the trust, the election to have the spouse treat your Roth IRA as their own cannot be made. There technically may be a work-around (a rollover), but why not just set things up right from the start?