Penalty for missing required distributions
If you don't take the required minimum distributions from your account, you will be subject to a penalty equal to 50% of the amount that should have been withdrawn.
Inheriting a Roth IRA
If you inherit a Roth IRA and transfer the assets to an Inherited Roth IRA, unlike the original owner, you must take RMDs. As long as the assets have been in the Roth IRA for five or more years, these RMDs can be withdrawn federally tax-free.
Required Distributions
For those whom the original account owner died December 31st, 2019 or before:
The 5-year rule
If the original account owner died prior to age 70½, you (as the non-spouse or entity beneficiary) may choose to elect to use the 5-year rule. Generally, this rule applies if the original owner died before April 1 of the year following the year the original owner would have turned age 70½.
Under the 5-year rule:
- You can withdraw from your inherited IRA assets at any time, in any amount.
- You must withdraw all assets by December 31 of the 5th anniversary year of the IRA owner's death.
As long as the account is depleted within this time-frame, the RMD penalties can generally be avoided.
Example:
Year of death: 2011
Fifth year after the year of death: 2016
Deadline for depleting the account: December 31, 2016
Note, assets withdrawn from inherited IRAs will be included as ordinary income and are taxable as such (see above for inherited Roth IRAs). This may impact your taxes significantly. Talk to a tax advisor if you plan to use this option.
For those whom the original account owner died January 1, 2020 or after:
The 10-year rule
If you are not an eligible designated beneficiary,1 or trust or other entity, you must withdraw all assets from the inherited IRA within 10 years.
Under the 10-year rule:
- You can withdraw from your inherited IRA assets at any time, in any amount within the 10-year time-frame.
- You must withdraw all assets by December 31 of the 10th anniversary year of the IRA owner's death.
As long as the account is depleted within this time-frame, the RMD penalties can generally be avoided.
Example:
Year of death: 2020
Tenth year after the year of death: 2030
Deadline for depleting the account: December 31, 2030
Note, assets withdrawn from inherited IRAs will be included as ordinary income and are taxable as such (see above for inherited Roth IRAs). This may impact your taxes significantly. Talk to a tax advisor if you plan to use this option
Please note that the information provided by Fidelity Investments is general in nature and should not be considered legal or tax advice. Fidelity does not provide legal, or tax advice. Consult with a legal or tax professional regarding your unique tax situations.