There’s over $1 trillion in Roth IRAs! What happens when it is inherited?

I blogged about inherited Roth IRAs here:

This video, the show notes, description, and any comments are for educational purposes only. They do not constitute tax, legal, financial, and/or investment advice for any person. Consult with your own advisors regarding your own matters….(read more)

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INVESTING IN A GOLD IRA: Gold IRA Account

INVESTING IN A SILVER IRA: Silver IRA Account

REVEALED: Best Gold Backed IRA

Inherited Roth IRAs are retirement accounts that are passed down to beneficiaries after the original account owner passes away. These accounts are an excellent way for individuals to continue saving for retirement and maintain tax-free growth on their investments.

When an individual passes away and leaves behind a Roth IRA, their beneficiaries have the option of rolling the account over into an Inherited Roth IRA. This type of account has unique rules and benefits that differ from traditional Roth IRAs.

One of the most significant benefits of an Inherited Roth IRA is that beneficiaries can take tax-free distributions at any time, regardless of their age. However, there are specific rules governing these distributions. Beneficiaries must take required minimum distributions (RMDs) based on their life expectancy, and they must start taking these distributions by December 31st of the year following the original account owner’s death. If beneficiaries fail to take RMDs, they may be subject to a penalty.

Another benefit of Inherited Roth IRAs is that they are not subject to required minimum distributions for the original account owner. This means that if the account owner passes away before taking RMDs, their beneficiaries will not be required to take any distributions until they reach the required age.

Inherited Roth IRAs can also be passed down to the beneficiary’s own beneficiaries if they choose. However, the rules for the third generation of beneficiaries differ, and distributions must be taken over ten years. Additionally, if the original account owner passed before reaching age 70.5, the beneficiary must take RMDs over their own life expectancy. If the original account owner passed after reaching age 70.5, the beneficiary must take RMDs over the original account owner’s remaining life expectancy.

It’s important to note that Inherited Roth IRAs are subject to estate taxes, and beneficiaries may be required to pay a federal estate tax. However, the tax code provides that the estate tax is calculated based on the account’s value on the date of the original account owner’s death. Additionally, if the estate is below the federal estate tax exemption, beneficiaries will not be required to pay any estate taxes.

In conclusion, Inherited Roth IRAs are an excellent way for individuals to pass on their retirement savings to their loved ones. These accounts provide beneficiaries with tax-free growth and distributions, and they are subject to unique rules that differ from traditional Roth IRAs. If you are the beneficiary of an Inherited Roth IRA, it’s essential to understand the rules and regulations governing these accounts to maximize their benefits.