Tom explains if an Inherited Roth Can be Transferred Directly to the Owner’s Roth Account.
Transcript:
Katie Nealis: “When my children inherit my Roth and have to spend it over the next 10 year, can they move it over into their Roth accounts as a tax free?”
Tom Vaughan: Yeah, unfortunately, no. I mean, this is actually one of the things that they changed at the end of 2019, they changed the tax law, you used to be able to spread out your your kids could inherit your Roth or your IRA, and they could spread it out, essentially, over their lifetimes, they have to do this thing called a Required Minimum Distribution. And it really takes small amount out for the rest of their lives.
Well, the government needs the tax dollars. And so they changed that to this 10 year window. And no, unfortunately, they cannot put that into their own Roth. The one nice thing about the difference between inheriting a Roth and inheriting a regular IRA, they both have to be taken out over 10 years. But theoretically, you could leave the Roth until right at the end, let it grow tax free for as long as possible. I converted all of my IRAs over to Roth, the me and you know, at the end of last year, and I talked to my kids, leave it in for 10 years, if something happens to us, and then take it out at the end, because they get that tax free growth. Now, if those would have been still an IRAs, if you leave it till the end, depending on how big they are, it could be kind of detrimental because you can pay a lot of tax on that big lump sum.
And so most likely, with IRAs, you know, especially bigger ones, you’re gonna want to spread that out, which of course, creates all kinds of other problems, but it can’t move it unfortunately, into their Roth. Theoretically, if they have earnings, they could take $6,000 of that money and put it into their own Roth, but obviously they might be getting a lot more than that out of your IRA, but that they could fund contributions to a Roth going forward using some of that money, and that won’t be a huge deal. But that anyway, that’s the that’s the way that you could take advantage of a little bit.