Federal employees are aware that traditional IRAs are subject to required minimum distributions (RMDs). Both the traditional IRA owner and whoever inherits a traditional IRA upon the death of the traditional IRA owner are subject to annual RMDs.
On the other hand, the owner of a Roth IRA is never subject to Roth IRA RMDs. But upon the Roth IRA owner’s death, depending on who the Roth IRA beneficiary is, an inherited Roth IRA may be subject to lifetime RMDs.
IRA Owner’s Death: NEDBs and the 10-Year Rule
As one of the provisions posted as part of the SECURE Act 2019, non-eligible designated beneficiaries (NEDBs) of IRA owners dying after December 31, 2019 must abide by the “10-year” rule. Both NEDBs and the “10-year” rules are explained below:
NEDBs. An NEDB is an individual or a qualifying trust who inherits an IRA or a retirement account but does not meet the strict criteria to be an “Eligible Designated Beneficiary” (EDB). NEDBs are typically adult children, siblings, or close friends.
10-year rule. The 10-year rule states that an inherited IRA must be depleted by the end of the 10th year following the year of death of the IRA owner. In addition, if a traditional IRA had reached their required beginning date (RBD) (meaning that the traditional IRA owner had to take traditional IRA required minimum distributions every year) then the inherited traditional IRA beneficiary also has to take RMDs from the traditional IRA during years one through nine of the 10-year rule. If the traditional IRA owner died before their RBD, then the NEDB would not be required to take RMDs within the 10-year payout period.
Since lifetime RMDs do not apply to both the Roth IRA owner and to all Roth IRA beneficiaries, annual RMDs do not apply during the 10-year payout period when a Roth IRA is inherited by an NEDB. As such, this allows the inherited Roth IRA to grow and accumulate tax-free for the full 10-year term before the inherited Roth IRA account must be withdrawn. The following example illustrates:
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Example 1. Susan age 82, owns a Roth IRA that she opened 20 years ago. Susan named her adult son, Kenneth, as her beneficiary. Kenneth is an NEDB. Susan died in March 2026.Kenneth immediately opened up an inherited Roth IRA. As an NEDB, Kenneth is subject to the 10-year rule which starts January 1, 2027, the year after the year of Susan’s death and ends December 31, 2036. Kenneth does not have to take annual RMDs from his inherited Roth IRA because all Roth IRAs (both the owner’s Roth IRA and the beneficiary’s Roth IRA) are not subject to RMDs. The only requirement is that Kenneth must empty his inherited Roth IRA by December 31, 2036. Note that Kenneth’s final inherited Roth IRA payout during 2026 is considered a “Roth RMD”.
IRA Owner’s Death: EDBs and the “Stretch”
Upon inheriting a traditional IRA or a Roth IRA, an eligible designated beneficiary (EDB) is allowed to use their own life expectancy in order to leverage the full lifetime stretch on the inherited account.
A EDB includes
(1): A surviving spouse;
(2) Minor children of the IRA owner (until a child becomes age 21);
(3) Disabled and chronically ill individuals; and
(4) Individuals more than 10 years younger than the IRA owner.
An inherited Roth IRA cannot remain untouched in perpetuity. Unlike an NEDB, an EDB can avoid the 10-year rule and stretch an inherited Roth IRA over their single life expectancy. An EDB of a Roth IRA is subject to RMDs annually though they are not taxable. The RMDs are annual, starting with the year after the death of the Roth IRA owner and ending in the year after the death of the Roth IRA EDB. The following example illustrates:
Example 2. Rose dies at age 78. She named her brother Jerry age 69, and her granddaughter Laverne, age 28 as 50/50 Roth IRA beneficiaries. Jerry qualifies as an EDB because he is not more than 10 years younger than Rose. As an EDB, Jerry elects to withdraw the inherited portion of Rose’s Roth IRA over the next 18.8 years. This is based on his life expectancy in the year after the year of Rose’s death. Granddaughter Laverne is an NEDB and is bound by the 10-year rule. NEDB Laverne has no RMDs in years one through nine of her 10-year period but she must empty her inherited Roth IRA portion by the end of year 10. This final payment to Laverne is considered an RMD.
Inherited Roth IRAs and Successor Beneficiaries
A successor Roth IRA beneficiary, also known as a “beneficiary of a beneficiary” Roth IRA, does not get to use any of their own personal information or status to determine the inherited Roth IRA payout structure. It does not matter who the successor beneficiary on what the successor’s relationship to the first beneficiary. The successor’s status as either an EDB or an NEDB does not have any effect on determining the required payout of the inherited Roth IRA.
As mentioned above if the beneficiary of a Roth IRA is an NEDB then the 10-year rule applies. This is because the Roth IRA owners are never subject to RMDs while they are alive, then there ae no RMDs within the 10-year period for a beneficiary Roth IRA. A beneficiary Roth IRA account has to be emptied out by the end of the tenth year following the year of death of the Roth IRA owner. If the first Roth IRA beneficiary dies during the 10-year period, the successor beneficiary “steps into the shoes” of the deceased beneficiary with the existing 10-year window with no annual RMDs. The successor beneficiary does not get to add an additional 10-year period. The following example illustrates:
Example 3. Grandfather Arthur dies with a Roth IRA. The beneficiary of Grandfather Arthur’s Roth is his adult son Robert who qualifies as an NEDB. Adult son Robert gets the 10-year rule and there are not annual RMDs within the 10-year period. Unfortunately, adult son Robert dies six year later. The successor beneficiary for Robert’s inherited Roth IRA is his wife, Betty. If does not matter that Betty is the wife of the first beneficiary. Betty is a successor beneficiary. As such, she steps into the shoes of the first beneficiary and must empty the inherited Roth IRA within the next four years.
Summary: RMDs Do Apply to Inherited Roth IRAs – With Qualifications
RMDs do apply to inherited Roth IRAs but with clarification. If the inherited Roth IRA beneficiary is an NEDB, then there are no annual RMDs in years one through nine of the 10-year period following the year of the death of the Roth IRA owner. However, the final payment in year 10 is an RMD. If the Roth IRA beneficiary is an EDB, then that EDB can choose between annual stretch RMDs over their single life expectancy or the same 10-year rule applicable to NEDBs.
Edward A. Zurndorfer is a CERTIFIED FINANCIAL PLANNER®, Chartered Life Underwriter, Chartered Financial Consultant, Registered Health Underwriter and Enrolled Agent in Silver Spring, MD. Tax planning, Federal employee benefits, retirement and insurance consulting services offered through EZ Accounting and Financial Services, located at 833 Bromley Street Suite A, Silver Spring, MD 20902-3019
