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Roth-K Distribution Death Benefit Question


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A participant starts making ROTH-401(k) contributions. Participant is over 59.5 but not yet age 73.

Before he reached the 5 year aging rule he dies also before reaching age 73.

Are the earnings taxable to the beneficiary?

Can the beneficiary rollover to an Inherited ROTH-IRA? if yes how quickly must the beneficiary exhaust the ROTH? Does the answer change if the beneficiary is a spouse v non spouse?

Beneficiary is spouse and is over age 73. Can she roll to regular ROTH IRA and treat as her own thus escaping all RMD requirements while alive?

Beneficiary and Participant were married less than 1 year at time of death but she was beneficiary for many years before they were married and I assume for IRS purposes the fact that they were married at time of death is the only relevant piece to the tax questions and ability or inability to stretch the distribution as long as possible.

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19 hours ago, Luke Bailey said:

Appleby, the rollover to spouse's own IRS will start a new 5-year holding period, right?

Hi Luke- yes. But, if the spouse already had a Roth IRA, the first Roth IRA starts the 5-year period for a qualified distribution,

Life and Death Planning for Retirement Benefits by Natalie B. Choate
https://www.ataxplan.com/life-and-death-planning-for-retirement-benefits/

www.DeniseAppleby.com

 

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On 12/28/2023 at 4:40 PM, Luke Bailey said:

Appleby, the rollover to spouse's own IRS will start a new 5-year holding period, right?

Sure, but she should also start with a basis equal to the rollover. And money coming out of the ROTH is basis recovery first so as long as she doesn't withdraw more than the initial rollover in the first 5 year, no taxes. At least as I understand it, assuming she doesn't already have a ROTH IRA which I don't believe she does.

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4 hours ago, Lou S. said:

Sure, but she should also start with a basis equal to the rollover. And money coming out of the ROTH is basis recovery first so as long as she doesn't withdraw more than the initial rollover in the first 5 year, no taxes. At least as I understand it, assuming she doesn't already have a ROTH IRA which I don't believe she does.

You would be right, if the 5-year period had been met for the 401(k). But in this case, it hasn't , right? "Before he reached the 5 year aging rule he dies". That would mean the rollover is from a non-qualified distributions. In such cases, the entire rolled over amount is not basis. Instead,  the rolled over amount is split - with the basis going into the basis bucket of the Roth IRA and the earnings going to the earnings bucket of the Roth IRA. 

 

Life and Death Planning for Retirement Benefits by Natalie B. Choate
https://www.ataxplan.com/life-and-death-planning-for-retirement-benefits/

www.DeniseAppleby.com

 

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