gains on inherited roth

Forum|Forum|1 year ago
October 3, 2024
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I inherited a Roth IRA which was opened 20+ years ago from a non spouse. The account contains 1 security, and the rest is cash. For simplicity, lets say the original account contained $10k cash, which I've since placed into an "inherited ROTH" account. I'm aware that I won't pay tax on the current $10k if I were to take a lump sum today, but what if I were to buy and sell securities at this point (post death of the original account owner)? Are the post death securities transactions taxable? For example, suppose tomorrow I took the entire $10k and bought a security, then 9 years from now (I fall under the 10 year rule) the $10k had grown to $25k. Would the $15k be tax free or will it be considered income to me since the original account owner wasn't the one that purchased / sold the securities that made the gains?

Best answer by dmertz

Because it has been more than 5 years since the beginning of the year for which the decedent first made a Roth IRA contribution, any distribution from the inherited Roth IRA will be nontaxable.

Under the 10-year rule, no distributions are required from an inherited Roth IRA until the end of the 10th year following the year of death, so you could take a single distribution at the end of the 10th year and that distribution will be entirely free of tax.

dmertzAnswer

Employee

Because it has been more than 5 years since the beginning of the year for which the decedent first made a Roth IRA contribution, any distribution from the inherited Roth IRA will be nontaxable.