Inherited Roth IRA Distribution Rules

A Roth IRA is a popular type of retirement account because it offers tax-free growth and withdrawals. If you inherit someone’s Roth IRA, you can enjoy the same tax advantages because the original owner paid taxes up front on the contributions. But not all Roth IRA benefits transfer over when you inherit a Roth IRA. For example, when you inherit a Roth IRA from someone who is not your spouse, you can’t let that money grow forever.

Learn more about how to navigate the complexities of inherited Roth IRA distribution rules. We’ll explain the rules for spouses versus non-spouses, along with how things changed under the Setting Every Community Up for Retirement Enhancement (SECURE) Act of 2019.

How Inherited IRAs Work

When you inherit a Roth IRA, many rules are the same as they are for an account you open yourself. As long as the original owner opened the Roth IRA at least five years before their death, you can withdraw the earnings tax free.

While you never have to withdraw money from your own Roth IRA, an inherited Roth IRA requires beneficiaries to take distributions. One exception is that if you’re the spouse of the original owner, you have the option to treat the account as your own, avoiding required minimum distributions (RMDs).

The SECURE Act, which passed in late 2019, changed how inherited IRA distributions work. If you inherited an IRA from someone other than your spouse who died before 2020, you’ll have to take required minimum distributions (RMDs), but you can stretch them over your lifetime.

If you inherited an IRA from a non-spouse who died on Jan. 1, 2020, or later, the SECURE Act rules apply. You won’t have to take RMDs, but in most cases, you’ll need to deplete the entire account within 10 years.

Inheriting a Roth IRA From a Spouse

When you inherit a Roth IRA from your spouse, you have more options available than you’d have as a non-spouse. Options for spouses are as follows:

Spousal Transfer

You can treat the Roth IRA as your own, either by transferring the money into your own account or opening a new one. The regular Roth IRA rules apply, meaning you don’t have to take RMDs. You’ll owe taxes and possibly a 10% penalty if you withdraw the investment earnings before age 59½ or if the five-year rule hasn’t been met. A spousal transfer is only available if you’re the account’s sole beneficiary.

Inherited Roth IRA (Life Expectancy Method)

You can set up an inherited Roth IRA and take distributions throughout your lifetime. RMDs are determined by your age and life expectancy, calculated according to the IRS Single Life Expectancy Table. You can delay RMDs until either whenever your spouse would have reached age 72 or Dec. 31 of the year following their death—whichever is later. Under this option, you’ll avoid the 10% early withdrawal penalty, even if you withdraw investment earnings before age 59½.

Inherited Roth IRA (10-Year Method)

The same inherited Roth IRA rules listed above will apply. But instead of taking RMDs based on your life expectancy, you’ll have 10 years to withdraw the full balance. You can withdraw it all at once or in intervals, as long as you’ve withdrawn all assets by Dec. 31 of the 10th year after your spouse died.

Lump-Sum Distribution

You can withdraw the Roth IRA assets all at once. However, you’ll owe taxes on investment earnings if the account was less than five years old when your spouse died.

Inheriting a Roth IRA From a Non-Spouse

The SECURE Act rules mostly come into play when you inherit a Roth IRA from a non-spouse, such as a parent, sibling, or friend. But if you qualify as an eligible designated beneficiary, you’re exempt from certain rules.

Eligible Designated Beneficiaries

The SECURE Act designates the following individuals as eligible designated beneficiaries. You can avoid the 10-year rule by opening an inherited IRA and stretching distributions over your lifetime if one of the following applies:

• You’re the surviving spouse of the original owner.
• You’re chronically ill or disabled.
• You’re a minor child. (The 10-year-rule clock will start once you reach age 18.)
• You’re less than 10 years younger than the original account owner.

Eligible designated beneficiaries can also open an inherited IRA and take distributions over 10 years or take a lump-sum withdrawal.

Other Beneficiaries

If you’re not considered an eligible designated beneficiary, you must withdraw the entire account balance by the 10th year after the death of the owner, provided that they died in 2020 or later. If the account owner died on Dec. 31, 2019, or earlier, you can still open an inherited IRA and stretch distributions over your lifetime.

A lump-sum withdrawal is another option for someone not counted as an eligible designated beneficiary. Regardless of whether you’re classified in this way, you won’t owe a 10% early withdrawal penalty, even if you’re younger than 59½.

Taking Tax-Free Distributions

One of the biggest Roth IRA benefits is that your withdrawals are tax-free, whether you’re the original owner or you inherited the account. But if you inherit a Roth IRA, you could owe taxes on the earnings portion if you withdraw the money less than five years after the original owner opened it.

Understand Your Options for an Inherited IRA

The best option for a Roth IRA you inherit depends largely on your circumstances. If you don’t have a pressing financial need, you may want to hold off on withdrawals for as long as possible to maximize the tax-free growth.

If you’re a surviving spouse, you can avoid withdrawals altogether if you opt for a spousal transfer. Otherwise, if you’re a surviving spouse or any other eligible designated beneficiary, taking lifetime distributions will give your inherited investments more time to grow tax-free.

Whether you’re a spouse or non-spouse, withdrawing the money over a shorter period or in a lump sum makes sense if you need the money. You’ll avoid the early withdrawal penalty no matter how old you are. You also won’t be taxed, as long as you’ve met the five-year rule.

Frequently Asked Questions (FAQs)

Want to read more content like this? Sign up for The Balance’s newsletter for daily insights, analysis, and financial tips, all delivered straight to your inbox every morning!