Inheriting a Roth IRA: Rules and Options

The rules for inheriting a Roth IRA as a non-spouse beneficiary changed sharply under the SECURE Act of 2019: you typically must drain the entire inherited account within 10 years, though a few categories of heirs (spouses, minor children, disabled beneficiaries) get more time. Unlike inherited traditional IRAs, distributions are often tax-free, but timing and elections matter enormously. Getting it wrong can trigger a large tax bill in a single year or waste opportunities to spread withdrawals.

The SECURE Act Changed the Game

Before 2020, a non-spouse heir who inherited an IRA could “stretch” the account over their own life expectancy, taking small required minimum distributions (RMDs) annually and leaving much of it to grow tax-free (or taxed minimally) over decades. This was hugely valuable for younger heirs.

The SECURE Act (Secure Act 2.0 added nuance in 2022) closed this loophole for most beneficiaries. If you inherited a Roth IRA from a parent, grandparent, or friend who died after 2019, you must fully withdraw the account by December 31 of the 10th year after the account holder’s death. No annual RMD requirement, but the full balance must be gone by year-end of year 10.

This is a hard deadline. Miss it, and the IRS imposes a 25% excise tax on the shortfall (plus other potential penalties). If the account holds $500,000 and you fail to withdraw it all by the deadline, you owe at least $125,000 in penalty alone.

Who Qualifies as an Eligible Designated Beneficiary?

A narrow set of heirs can still stretch distributions and avoid the 10-year rule. These “eligible designated beneficiaries” (EDBs) include:

• Spouse: Can roll the Roth to their own account or treat it as their own, with no RMD requirement during their lifetime.
• Minor children of the account holder: Can stretch distributions over their own lives, but only until they reach the age of majority (typically 21); then the 10-year clock starts.
• Disabled or chronically ill individuals: If you meet Social Security’s definition of disability or chronic illness, you can stretch over your remaining life expectancy.
• Beneficiaries not more than 10 years younger than the deceased: If the account holder was 70 and you’re their 62-year-old sibling, you may qualify.

For most heirs—adult children, grandchildren, friends, or beneficiaries not meeting these criteria—the 10-year rule applies.

Understanding the 10-Year Rule

The 10-year rule means you must complete all withdrawals by December 31 of the 10th year following the death. It does NOT mean you can withdraw nothing for 9 years and then withdraw everything in year 10. While there is technically no annual RMD requirement, the IRS will scrutinize accounts that show no activity for years 1–9, and many financial institutions require at least annual statements or activity.

The safer approach: withdraw at least something each year, or make a large withdrawal in year 5–7 and the remainder in year 10. The exact timing is flexible, as long as nothing remains on December 31 of year 10.

Separate Inherited IRA Accounts

When you inherit a Roth IRA, the financial institution holding it will transfer it into an “inherited IRA” account in your name. You typically cannot roll it into your own Roth; instead, it sits as “inherited Roth IRA—[deceased person’s name].”

If there are multiple beneficiaries, you can request that the institution split the inherited account into separate inherited IRAs, one for each beneficiary. This is crucial: separate accounts allow you to withdraw on your own timeline independent of co-beneficiaries. If the account remains in a single name for multiple heirs, you’re forced to coordinate withdrawal timing or face disputes over how distributions are split.

Tax Treatment of Distributions

This is where Roth inheritance shines compared to traditional IRA inheritance. Because the account holder already paid taxes on contributions and conversions, distributions to heirs are typically tax-free—even the earnings portion—if two conditions are met:

1. The original account holder had the Roth for at least 5 years (the “5-year rule”). If they opened it recently, earnings may be taxable; only the contribution basis is tax-free.
2. The distribution is of the entire account, not selective withdrawals.

If the account holder made Roth conversions from a traditional IRA (converting pre-tax money to after-tax), the conversion amounts are not subject to the pro-rata rule that complicates inherited traditional IRAs. In a traditional IRA, if you have multiple accounts with a mix of pre- and post-tax balances, the IRS applies a pro-rata calculation to your distributions, forcing you to withdraw a proportional mix of taxable and non-taxable funds. Roth conversions escape this, making Roth inheritance cleaner.

The 5-Year Rule for Roth Accounts

Each Roth IRA has its own 5-year holding period, measured from January 1 of the year the account was opened. If the account holder passed away before the 5-year period was complete, distributions of earnings (not contributions) are subject to income tax and potentially a 10% early withdrawal penalty.

For example: your parent opened a Roth IRA in 2023 and died in 2024, leaving you a $200,000 account ($50,000 contributed, $150,000 earnings). You inherit it and withdraw everything in 2024. The $50,000 is tax-free; the $150,000 earnings are taxable income and subject to a 10% early withdrawal penalty (unless you qualify for an exception). The tax bill could be substantial.

If the account was opened in 2019 or earlier and your parent died in 2024 or later, the 5-year rule is satisfied, and all distributions are tax-free.

Required Minimum Distributions and Annual Reporting

Unlike traditional inherited IRAs, there is no annual RMD requirement for non-spouse beneficiaries of an inherited Roth. You can let the account sit and grow, taking only the amount you want each year, as long as it’s fully gone by year 10.

However, you must still file Form 8606 (Roth IRA contribution bases) and other required tax forms when you inherit and when you withdraw, reporting the distributions to the IRS. Failure to file these forms can result in penalties and IRS inquiry.

Your custodian (the brokerage or bank holding the account) will send you Form 5498 each year, showing the inherited account status and distribution amounts taken.

Strategies for the 10-Year Window

Given the 10-year deadline, you have choices:

Withdraw gradually over 10 years: Take roughly equal amounts each year (e.g., $50,000/year on a $500,000 account). This spreads the tax burden (if any) and keeps you from creating a large single-year income event.

Withdraw in large lumps strategically: If you have a low-income year (sabbatical, job loss, retirement), take a larger distribution that year to minimize your tax bracket impact. In high-income years, withdraw minimally.

Invest and grow the account during the 10 years: If you don’t need the money immediately, keep the inherited IRA invested in the market. Earnings within the account are tax-free (for Roth), so the account can compound. At year 10, you withdraw what remains.

Roth conversion of remainder: If you own a traditional IRA, you cannot directly “convert” an inherited IRA to your own account. However, some custodians allow you to distribute funds from the inherited Roth and immediately contribute them to your own Roth (a workaround). This is complex and should only be done with professional guidance.

Disclaim or Refuse the Inheritance

If you don’t want (or don’t need) the inherited Roth, you can disclaim it within 9 months of the account holder’s death. A qualified disclaimer allows the asset to pass to the next beneficiary (or into the account holder’s estate) without you being deemed the owner. This can be useful if a younger or more financially needy family member should benefit instead.

A disclaimer must be in writing, irrevocable, and timely. Do this through your attorney or the institution holding the account.

Spouse Beneficiaries: A Different Path

If you are the surviving spouse, you have more flexibility. You can:

• Treat the inherited Roth as your own: Roll it into your own Roth IRA, with no RMD requirement during your lifetime. You inherit the original 5-year clock, so distributions to your own heirs will be tax-free if the original account is now 5+ years old.
• Keep it as an inherited IRA: Treat it as a separate inherited account, taking distributions over your life expectancy. This is useful if you want to stretch it and have younger heirs who will eventually inherit from you.
• Disclaim: Pass it to your children or another beneficiary.

Most spouse beneficiaries roll the account to their own to simplify administration and gain the RMD flexibility. However, if you’re younger than the original account holder and expect to live decades longer, keeping it as an inherited IRA and stretching over your life expectancy can preserve more wealth for your heirs.

Professional Guidance and Timing

Inherited IRA rules are technical, and mistakes are costly. Within a few months of inheriting, consult a tax advisor or CPA to understand the 5-year rule status, your withdrawal strategy, and any tax implications. If the account is large or your situation is complex (multiple inherited accounts, mixed pre- and post-tax contributions, or an eligible designated beneficiary claim), engage an estate attorney or CFP to formalize a withdrawal plan.

Document your withdrawal strategy and keep records of all distributions. The IRS may audit inherited accounts, particularly large ones, to ensure the 10-year rule is being followed.

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