How inherited Roth retirement accounts work
Key takeaway
Inherited Roth IRAs require beneficiary distributions after the owner's death, and withdrawals are free of federal income tax when the Roth qualification requirements are met.
Research notice: Based on primary sources linked below. The authorities address Roth individual retirement account (IRA) qualification, distribution ordering and beneficiary payout requirements.
What makes a Roth IRA distribution qualified
A distribution paid to a beneficiary or the owner's estate on or after death is excluded from federal gross income if the owner's five taxable year qualification period is complete. Death supplies the qualifying event, but neither inherited status nor reaching age 59½ replaces that period. Corrective distributions of excess contributions and their earnings are excluded from qualified distribution treatment.
The qualification period begins on the first day of the owner's taxable year for which the first regular contribution was made to any of the owner's Roth IRAs. An earlier first conversion year supplies the starting year instead. The period ends on the last day of the fifth consecutive taxable year.
For a calendar year taxpayer, the starting day is the first day of that contribution or conversion year, rather than the account opening date. One qualification period covers all the owner's Roth IRAs. A contribution returned as a corrective distribution does not start the period.
Distributions that are not qualified
A nonqualified inherited Roth IRA withdrawal can include taxable earnings. A return of the owner's contributions is excluded from gross income to the extent identified under the ordering rules below, so inheriting the account does not itself exclude earnings from income.
For nonqualified Roth IRA withdrawals, determine the ordering as of the end of the taxable year and exhaust each category before moving to the next:
- Regular contributions first.
- Conversion and rollover contributions next, in chronological order, starting with the earliest year. Within each conversion or rollover, use the taxable portion before the nontaxable portion.
- Earnings last.
Disregard corrective withdrawals of excess contributions and their earnings, and disregard rollover contributions from other Roth IRAs for this ordering purpose.
Income tax treatment for beneficiaries
A distribution paid to a beneficiary or the owner's estate on or after death because of the Roth IRA owner's death is exempt from the 10% additional tax on early distributions. Taxable earnings can still be included in income under the nonqualified distribution rules, and beneficiary payout requirements still apply.
Distribution timing for inherited Roth accounts
After a Roth IRA owner dies, the beneficiary distribution rules apply as though the owner died before the required beginning date.
No annual distribution is required in years one through nine when the ten year rule applies to an inherited Roth IRA. The full payout deadline remains applicable. This schedule does not replace the separate tax qualification requirements above and does not apply to life expectancy payouts.
For beneficiary categories and the conditions determining which payout rule applies, see retirement accounts and beneficiaries.
Spousal ownership of an inherited Roth IRA
When a qualifying sole spouse beneficiary treats the Roth IRA as their own, subsequent withdrawals follow the spouse's own qualified distribution requirements. The original owner's death no longer supplies the qualifying event for those withdrawals. The qualification period ends at the earlier completion of the decedent's or spouse's period.
For spousal ownership eligibility, see the surviving spouse retirement account options guide. See Related reading for separate shares and beneficiary subtrusts.
Common questions
Does the owner's death restart the Roth five year period?
No, death does not restart the qualification period for a Roth IRA held as beneficiary of a deceased owner. Count the decedent's holding period, and determine the inherited account's period independently of the beneficiary's own Roth IRA period. For spousal ownership treatment, use the separate explanation above.
How do annual distributions work for an eligible designated beneficiary?
An eligible designated beneficiary receiving life expectancy payments under the account or plan provisions must begin annual distributions by the end of the calendar year following death. Annual distributions must continue until the interest is fully distributed. A plan may instead specify ten year treatment for some or all eligible designated beneficiaries.
If the surviving spouse is the sole beneficiary, commencement may be delayed until the end of the year the owner would have attained the applicable age. See retirement accounts and beneficiaries for beneficiary categories.
How are designated Roth accounts in workplace plans treated at death?
A participant whose entire interest under a defined contribution plan is in a designated Roth account is treated at death as dying before the required beginning date.
For lifetime rules for workplace Roth accounts, see the retirement accounts and beneficiaries guide.
Resources to check out
- IRS: IRA distributions: Practical explanations of inherited Roth IRAs, withdrawal ordering and beneficiary distributions.
- Roth IRA regulations: Distributions: Primary rules supporting the qualification period, inherited accounts and spousal ownership treatment.
- Beneficiary payouts: Death before the required beginning date: Primary rules supporting payout timing, life expectancy payments and spouse commencement delays.