Inherited Roth IRA Tax Rules

A non-spouse beneficiary who inherits a Roth IRA must distribute the entire balance to themselves within 10 years under the SECURE Act (effective 2023). Distributions of earnings are tax-free if the original account owner satisfied the five-year holding rule; distributions of contributions (basis) are always tax-free. The 10-year window is firm, but timing of withdrawals within it is flexible.

The 10-year rule: the hard deadline

The SECURE Act (2019, effective 2023) changed the rules for non-spouse beneficiaries. Previously, you could “stretch” inherited IRAs over your lifetime, taking small annual required minimum distributions (RMDs) and letting most of the balance grow tax-deferred or tax-free.

Now, non-spouse beneficiaries must distribute 100% of the inherited Roth IRA balance by December 31 of the 10th year after the account owner’s death. The account must be empty.

Example: Your parent dies on June 15, 2025. The 10-year window runs from 2025 to 2034. You must withdraw everything by December 31, 2034.

The 10 years refers to calendar years, not a rolling anniversary. If the owner dies mid-year, you are still measured from January 1 of the death year onward.

The five-year clock and tax-free earnings

Here is the crucial detail: Roth IRA distributions of earnings are tax-free only if the account owner satisfied the five-year holding rule. This is separate from the 10-year rule.

Five-year rule: The account must have been open for at least five tax years before the account owner’s death for earnings to be distributed tax-free.

Example 1 (five-year rule satisfied):

• Parent opens a Roth IRA on March 15, 2020.
• Parent dies on October 1, 2025.
• The account has been open 5+ years (2020–2025).
• You inherit $50,000 in contributions and $25,000 in earnings.
• You withdraw it over the next 10 years.
• All withdrawals are tax-free (including the $25,000 in earnings).

Example 2 (five-year rule NOT satisfied):

• Parent opens a Roth IRA on March 15, 2023.
• Parent dies on June 1, 2024.
• The account has been open only ~1 year.
• You inherit $40,000 in contributions and $8,000 in earnings.
• You withdraw it over the next 10 years.
• The $40,000 in contributions are tax-free (always).
• The $8,000 in earnings is taxable to you (ordinary income).

The five-year clock is tied to the original account owner, not to you. It does not restart when you inherit.

Contributions are always tax-free; earnings may be taxable

This is a core principle: contributions withdrawn from an inherited Roth are always tax-free. Contributions are basis—money that was already taxed (or rolled over post-tax from another Roth).

Earnings (the growth on those contributions) are tax-free only if the five-year rule was met. If not, earnings are ordinary income and you pay tax on them.

To calculate what is contributions and what is earnings, use the pro-rata rule (for traditional IRAs) or simply track basis. Your custodian (Fidelity, Schwab, etc.) often provides a breakdown. If not, you can calculate it as:

Earnings = (Withdrawal Amount) × (Total Earnings / Total Balance)

No RMDs during the 10 years

Under the old rules, non-spouse beneficiaries had to take annual RMDs from inherited Roth IRAs. The SECURE Act eliminated this for Roth IRAs specifically.

You can withdraw $1 in year one, $99,999 in year ten—whatever you want—as long as the entire balance is gone by the end of year 10. This flexibility is a major advantage over inherited traditional IRAs, where RMDs are mandatory and can push you into higher tax brackets.

The five-year rule and inherited traditional IRAs

For inherited traditional IRAs, the five-year rule works differently. If the original owner died before taking their first RMD, beneficiaries have two choices: (a) drain the account within five years, or (b) take RMDs based on life expectancy. For inherited Roths, the 10-year deadline is firm, and the five-year rule applies only to tax-free treatment of earnings.

Do not confuse the two. Roth IRAs are more flexible and tax-efficient; take advantage.

Spouse beneficiary exception

If your spouse inherits your Roth IRA, they can treat it as their own, and the 10-year rule does not apply. They can roll it into their own Roth IRA or let it grow indefinitely. This is a major planning point for married couples.

Practical strategy: when to withdraw from an inherited Roth

The 10-year window gives you flexibility. Some beneficiaries:

• Withdraw early: Take large distributions early to minimize growth and push money into tax-free territory sooner.
• Withdraw late: Let the money compound for 9 years, then take everything out in year 10. This maximizes tax-free growth (if the five-year rule is met).
• Withdraw strategically: Spread withdrawals across years where you have lower income (sabbaticals, career breaks), minimizing tax on any taxable earnings.

If the five-year rule was NOT met, any taxable earnings will push you into higher brackets if you withdraw all at once. Strategic timing across the 10 years can help.

Taxes and reporting

If you owe tax on earnings, the custodian will issue a Form 1099-R. Inherited Roth distributions are reported on your Form 1040, and any taxable portion is added to ordinary income.

There is no early-withdrawal penalty on inherited Roth IRAs, even if you are under 59½. The funds were inherited, not withdrawn by you in the traditional sense.

State tax considerations

Some states do not recognize Roth IRA tax-free treatment for inherited accounts. They may tax the earnings regardless of federal law. Check your state’s rules if you live in a high-income-tax state.

See also