Inherited Roth IRAs: Whose Five-Year Rule is it Anyway?

by Prof. Robert Bloink and Prof. William H. Byrnes

It’s common for clients to automatically slip Roth accounts into the tax-free bucket when it comes to retirement income planning. In reality, situations exist where Roth distributions can result in tax liability if a client isn’t careful. It’s possible that taxes and penalties might apply for clients who have not yet reached age 59 ½ or satisfied a five-year waiting period. The picture can become even more complicated when a surviving spouse inherits a Roth IRA and fails to consider the five-year rule and factor their age into the equation. When clients are planning their distribution strategies for inherited Roth accounts, it’s critical to consider: whose five-year rule is relevant to the tax picture?

Taxation of Roth Distributions: The Basics