Chapter 7 - RMDs for Roth 401(k)s and Inherited Roth IRAs

Some Roth Accounts Do Have RMDs

If you are the original owner of a Roth IRA you will not have a Required Minimum Distribution (RMD). However, many people do not realize there are RMDs on Beneficiary / Inherited Roth IRAs and Roth 401(k)s. Yes, even Roth 401(k)s held by the original owner have required minimum distributions. To learn more, visit www.irs.gov and review Publication 590-B, and other information found on the IRS website. 

RMD Calculations – Beneficiary / Inherited IRAs

The RMD for Beneficiaries of Roth IRAs is determined using IRS Publication 590 B, and the calculations are quite complex. There are a couple of different ways to approach this. For example, a person can withdraw the whole account within 5 years, or over the course of their lifetime. If a person misses the RMD the first year, they are forced to withdraw the funds over 5 years. If withdrawals are done correctly, it should not create a taxable event. Contact us with your unique situation, because some decisions are time sensitive and need to be made soon after you inherit the account. If not done correctly, you could be facing an excise tax up to 50% of the withdrawal that was not taken out on time.  

Rollover A Spouse’s Roth To Avoid RMDs

If you are the spousal beneficiary of a Roth IRA or Roth 401(k), and are the only beneficiary, you may want to consider a rollover into your Roth account, therefore avoiding RMDs. Or you can choose to delay RMDs until your spouse would have reached age 70 ½, using an Inherited / Beneficiary Roth IRA, instead. Discuss this option with a financial advisor, or contact us for help. 

Roth 401(k)s Have RMDs Too

In most situations, unless you are still working, distributions for a Roth 401(k) must begin at age 70 ½. However, you do have the option of rolling these funds into your own Roth IRA, allowing you to avoid the RMD during your lifetime. We can help you with this kind of rollover. Contact your plan administrator if you are over the age of 70 ½ to discuss this requirement. 

Be Aware Of The 5-year Rule

If the Roth IRA or Roth 401(k) has not been funded for a full 5 years, there are unique rules that apply to withdrawals. This applies to both original account owners and beneficiaries. As your advisors, we will assist you in understanding how these regulations will affect your particular retirement strategy. Be sure to contact us prior to making a withdrawal if this is the case, to minimize any potential issues with the IRS. Visit irs.gov to learn more. 

Contact Us For Help With Roth RMDs

There are important deadlines and regulations to be aware of when taking RMDs on a Roth IRA and Roth 401(k) account. Both can be appropriate accounts for a retirement plan because of the tax advantages, but they must be handled carefully when it is time for RMDs. We help individuals and families navigate the complexities of Roth accounts, and incorporate them into a holistic retirement plan. Please contact us with any questions you may have about this topic.