If you inherit a Roth IRA from your spouse, you can roll that retirement account into your own Roth IRA and name your own beneficiaries. You can avoid required minimum distributions as long as you live. In this scenario, you become the owner of the Roth IRA and the owner of a Roth IRA never has to take any distributions.
At your death, the Roth IRA will pass to your beneficiaries. They’ll have to take at least minimum distributions, based on their age, but all the distributions will be tax-free as long as the Roth IRA was in existence at least five years.
Is there a catch in this strategy? Only if you need a large withdrawal soon after the Roth IRA was established.
Suppose Larry Roberts establishes a Roth IRA in 2010 with a $100,000 conversion, paying income tax on $100,000. He dies in 2011 and leaves that account to his wife Janice, who rolls it to her own Roth IRA. In 2013, when the Roth IRA is worth $130,000, Janice faces a financial emergency.
At that point, Janice can withdraw up to $100,000 (the amount of the original Roth IRA conversion) income tax-free. If Janice withdraws more than $100,000, the excess will be subject to income tax because the Roth IRA will not have passed the five-year mark. Jane also may owe a 10 percent early withdrawal penalty if she is not yet age 59 1/2.
