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The professionals at Advanced Underwriting Consultants (AUC) answer the tax and technical questions posed by producers. Here’s the question of the day.
Question: How are Roth IRA distributions to a non-spouse beneficiary taxed after the death of the taxpayer?
Answer: Qualified distributions from a Roth IRA are tax free. For a distribution to be qualified from a decedent’s account, it must be made more than five years after the initial contribution to any Roth IRA account established by the taxpayer.
Any other distribution is nonqualified. A nonqualified distribution from a Roth IRA is tax free up to the taxpayer’s investment in the account.
So if a nonspouse beneficiary liquidates the Roth account within five years of the decedent’s first contribution to a Roth, the balance distributed is nonqualified—and partly taxable. If the beneficiary waits to withdraw gain until more than five years after the decendent’s first contribution, those withdrawals will be tax free.
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