What happens to my Roth account when I die?

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Why.: hi dan,

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I’m following your column on whether retirement distributions can be put into a Roth after your RMD is met. I’ve been told that I’ll have to make additional distributions in a regular IRA if the money is coming from a 401(k) to do so and then transfer them to the Roth and the money that’s added to the Roth to remain taxable. To be in the account for five years. Is that right?

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If that’s true, it discouraged me. No one knows when they’ll be called by their creator and I didn’t want to put the burden of worrying on the Roth beneficiary himself.


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a.: Hi Katrina,

Thanks for reading the column and asking questions. “…referring to I’m told I’ll have to make additional distributions in a regular IRA if the money is coming from a 401(k) to do so and then transfer them to a Roth…”

I don’t think transferring funds to a traditional IRA first is required by the tax code or IRS procedures, but there is often a difference between what the IRS allows and what provisions are included in the plan documents. For example, the IRS allows “in-plan” conversions whereby 401(k) funds inside the plan can be converted into a Roth 401(k) account, but many plans do not allow such conversions. If the plan doesn’t allow for direct conversion to a Roth IRA, then yes, the money must first go to a traditional IRA and then be converted from there.

“…but that RMD money added to the Roth must be in the account to remain non-taxable for five years.” This may be true but not always.

Since you are taking RMDs, it is clear that you are over 59 of age. Above age 59 , when you convert, the money converted is taxed and tax-free to you or heirs from that point forward. In addition, all other contributions you made to a Roth IRA and all other conversions you made to a Roth IRA prior to the conversion of funds from the 401(k) are also tax-free. If you weren’t 59 yet, all of your contributions would be tax-free, but the five-year rule would apply, especially for conversion to a Roth IRA.

What you’re hearing about is another five-year rule. This applies to earnings rather than pre-59 conversions. If it’s been more than five tax years since you opened your first Roth IRA account, even though that Roth IRA no longer exists, the rule doesn’t apply and earnings in the account (the amount above all contributions and conversions) are tax-free. Is. If you were younger than 59 , both taxes and a 10% penalty apply to distributed income, unless you qualify for the exception.

When inherited, if you die more than five years after you opened your first Roth IRA, all of the funds will pass to your heirs tax-free. If you die within five years of opening your first Roth IRA (not five years from the date of your death), beneficiaries can make any or all contributions and conversions tax-free immediately. If they take out earnings, those distributions may be taxed if they are withdrawn from the account during that five-year window. The 10% penalty regardless of their age will not apply when they take distributions because the owner’s death penalty is one of the exceptions. Once it’s been five years since you opened your first Roth IRA, everything could be tax-free.

If you have any questions for Dan, please email him with the subject line ‘Marketwatch Q&A’.

Dan Moisand is a Moisand Fitzgerald Tamayo. financial planner in Serving customers nationwide from offices in Orlando, Melbourne and Tampa Florida. His comments are for informational purposes only and are not a substitute for personal advice. Consult your advisor about what is best for you. Some reader questions are edited to help present the content.

Credit: www.marketwatch.com /

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