John R. Bullis: ROTH IRA distributions to non spouse beneficiary

When the owner of a ROTH IRA dies and the beneficiary is not the surviving spouse, special rules on required minimum distributions apply.

The Non Spouse Beneficiary (i.e. child, etc) is to receive distributions from the ROTH IRA:

Total distribution by the end of the fifth calendar year after the year of the owner’s death; or distributions over a period of not greater than that beneficiary’s life expectancy and those distributions must begin before the end of the calendar year following year of owner’s death.

If the owner of the ROTH IRA did not designate a beneficiary, the remaining balance must be distributed no later than Dec. 31 of the calendar year which contains the fifth anniversary of the date of the owner’s death.

Some folks are surprised to learn that ROTH IRA distributions are required if the beneficiary is not a surviving spouse.

The distributions from a ROTH IRA are not taxable income.

If the beneficiary other than surviving spouse failed to do the required distributions from a ROTH IRA, the beneficiary may request a waiver of the excise tax (penalty for not taking distributions properly). The beneficiary is to attach a statement explaining the situation, complete form 5329 (the additional tax on distributions from IRAs and other tax favored accounts). See the instructions for form 5329 for details. IRS will waive the penalty (excise tax).

The main idea is for beneficiaries of ROTH IRAs that are not the surviving spouse, must take distributions are indicated above under one of the two methods. The distributions retain the character of ROTH IRAs and are not taxable income.

The penalty (excise tax) for not taking the required distributions timely is avoided by complying with the instructions to form 5329.

ROTH IRAs are popular and can be a big benefit to beneficiaries. The rules on required distributions can be a bit confusing, but the waiver procedures are favorable. If the beneficiary is a child or grandchild, the distributions can be done over many years — the beneficiaries expected life per the IRS tables.

Did you hear? “The quickest way to find something that is lost is to buy a replacement,” by Ann Landers.

John Bullis is a certified public accountant, personal financial specialist and certified senior adviser who has served Carson City for 45 years. He is founder emeritus of Bullis and Company CPAs.