August 21, 2019 at 8:03 pm #4031Bruce1950Participant
I came across this situation yesterday and have had no luck in finding the answer through my usual sources.
H&W married many years. H opened and funded with $3,000 his first Roth in 2010 and has not contributed to it since. W had never opened one until she retired, rolling her 403(b) balance to her TIRA, from which she converted $50,000 to her first Roth. This occurred early 2017. In Aug 2018 she died suddenly, with her IRAs naming her surviving husband as sole beneficiary. H wants to roll both TIRA and RIRA over into his, but has a question about holding period for qualified withdrawals from the Roth.
So the question is, whose Roth holding period will be used when both RIRAs are combined? Her Roth will not meet the required 5 year holding period until January 2022. I’d guess it will be his, as her’s is simply being combined with his.
And what would happen if it were the other way around, where H passed away and W wished to roll his longer-held RIRA into her shorter held RIRA?
BruceMAugust 22, 2019 at 12:53 am #4032Alan S.Participant
Hi Bruce. Yes, the spousal inheritance of a Roth IRA presents some confusing scenarios. If the surviving spouse elects to assume ownership of the inherited Roth, the 5 year holding period still starts with the first contribution of the deceased spouse. The applicable Reg 1.408(a)(6) Q 7 states:
“Q-7. Is the 5-taxable-year period described in A-1 of this section re determined when a Roth IRA owner dies?
A-7. (a) No. The beginning of the 5-taxable-year period described in A-1 of this section is not re determined when the Roth IRA owner dies. Thus, in determining the 5-taxable-year period, the period the Roth IRA is held in the name of a beneficiary, or in the name of a surviving spouse who treats the decedent’s Roth IRA as his or her own, includes the period it was held by the decedent.”
And if the surviving spouse also had their own Roth IRA, the holding period is the LONGER of the two Roth IRAs. This is true regardless of whether the assumed Roth is rolled into the already owned Roth or the two remain separate Roth accounts.
However, a choice is to be made when to elect ownership of a Roth inherited from the spouse. For example, if the surviving spouse has no Roth IRA and inherits one from their spouse OF ANY AGE and held 5 years but the surviving spouse is not yet 59.5, electing ownership would produce a non qualified Roth until the surviving spouse was 59.5. Conversely, if the survivor continued the Roth as inherited, the death would make the Roth immediately qualified. So there are certain cases where the surviving spouse should delay the election of ownership due to their age.
Note that if the inherited Roth is rolled over, the election of ownership was deemed to occur at the time of the rollover if not earlier.
All these rules operate for the benefit of the surviving spouse except that the death cannot be used to make a NQ Roth qualified unless any distribution is taken as a 4 coded death distribution.
Returning to your specific question, you are correct that the longer holding period of HIS Roth will apply to both accounts once he elects ownership of W’s Roth, whether he combines them or not. If H passed first, since H held 5 years W could maintain as a beneficiary and his death would make that beneficiary Roth qualified. But if she elects ownership and is not 59.5, the Roth will not be qualified until she hits 59.5.
I guess you could say that the holding period rules are favorable, but the age rules stand on their own.August 22, 2019 at 5:16 pm #4036Bruce1950Participant
Much thanks, Alan. As I suspected but thanks for the reference link
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