John M. Hoffman & Associates CPAs
Frequently Asked Tax Questions
Individual Retirement Accounts – IRAs
"What if I inherit a ROTH IRA?"
The beneficiary of a ROTH IRA must take distributions from the account over their life expectancy without recalculation. The without recalculation means that if you start with a certain life expectancy and decrease such life expectancy (which is your divisor) by one each year.
Think about the opportunity where Granddaddy Big Bucks leaves his ROTH IRA to your ten year old child. That ten year old child has a 72.8 year life expectancy. That means that the ten year old child can take the inherited ROTH IRA out essentially as a tax free annuity. The first year, the child divides the account balance by 72.8 and takes that amount. Given that this only represents 1.37% of the account, chances are that the account will have earnings greater than the withdrawal. In the subsequent year the 72.8 is reduced by 1 and the hopefully now greater account balance is divided by 71.8 to determine the amount of mandatory tax free distribution. This continues for a total of 73 years and when your ten year old has reached age 83, the account will be completed distributed. Now that is a lot of tax free earnings! Don’t forget those are the minimum distributions and your child can always take larger distributions should he or she want or need.
