If you inherit a Roth individual retirement arrangement (Roth IRA) from a parent and take withdrawals correctly, you’ll 𒊎be able to enjoy tax-free withdrawals for years. Your options will depend on whether you are considered a designated benefic𒉰iary or an eligible designated beneficiary.

Learn more about these designations and what to𝓰 do when you inherit a Roth IRA in different circumstan❀ces.

Your Roth IRA Options

If you are a beneficiary inheriting a Roth IRA, you must follow different rules depending on your circumstances. If the IRA originally belonged to your parent, you fall into one of two categories: designated beneficiary or 澳洲幸运5官方开奖结果体彩网:eligible designated beneficiary.

What Is a Designated Beneficiary?

Designated beneficiary applies to most people who inherit an IRA from a parent. Also called a "named beneficiary," it is defined by the 澳洲幸运5官方开奖结果体彩网:SECURE Act as someone designated to receive an asset when the original owner dies.

If you are a designated beneficiary on your parents' IRA, you will be required to withdraw all of the money from the account within the 10-year period following your parents’ death. This period starts on Dec. 31, the year after the original account owner died. This is sometimes referred to as the “澳洲幸运5官方开奖结果体彩网:10-year rule.”

However, you have flexibility with when you take out money and how much you take out each withdrawal before the 10-year period is over. You do not have to take 澳洲幸运5官方开奖结果体彩网:required minimum distributions (RMD🧸s) every year, but you can make withdrawals whenever you likꦯe—just as lonཧg as you deplete the account within the 10 years.

In the meantime, if you don’t need the money, you💫 can keep it invested in the IRA and enjoy another decade of taxꩵ-free growth.

What Is an Eligible Designated Beneficiary?

The eligible designated beneficiary category applies �♑�to minor children (the age of majority varies by state), a surviving spouse, and individuals who are disabled or chronically ill.

Minors can begin to take distributions over their remaining life expectancy, as determined by the tables in Publication 590-B of the 澳洲幸运5官方开奖结果体彩网:Internal Revenue Service (IRS), uꦚntil they reach the age of majority. (Generally, anyone up to age 26 may be considered a minor.) After that, beneficiaries must follow the 10🃏-year rule to withdraw funds within 10 years. But they are not required to take RMDs.

Others in the eligible designated beneficiary category can take distributions over their IRS-determined life expectancy.

These more flexible rules give eligible designated beneficiaries an opportunity to stretch their distributions over a longer period and thus 澳洲幸运5官方开奖结果体彩网:benefit from the Roth ༺IRA’s tax-free compounding for that extended period. However, eligible designated beneficiaries are not obligated to do that—they can take distributions as soon as they like, even right away in the form of a lump sum. As long as the account that they inher🐼ited satisfies the five-year holding period rule, their distributions will be tax-free.

Opening an Inherited IRA Account

If you inherit a parent's IRA—either Roth or traditional—you need to decide how you will acce♎pt the money. One option is toඣ take the money in a lump sum.

If you want to maintain the account's tax advantages, you can open an 澳洲幸运5官方开奖结果体彩网:inherited IRA, which is sometimes called a 澳洲幸运5官方开奖结果体彩网:beneficiary IRA, and move the money into it. You can do that at many financial institutions that handle regular IRAs. Unfortunately, you will not be able to contribute additional money to your inherited IRA.

How Inherited Roth IRAs Are Taxed

The money in an inherited IRA will continue to grow tax-free as long as it remains in the account. Distributions of the original account owner’s 澳洲幸运5官方开奖结果体彩网:contributions aren’t taxed, but distributions of earnings are taxable if the Roth IRA or any other Roth IRA held by that same account owner is not at least five years old. Inherited IRAs are not subject to the 10% penalty that normally is imposed on account holders who take distributions before age 59½.

The Bottom Line

Children who inherit a parent’s Roth IRA eventually will have to take all of the money out of the account. The rules differ depending on whether they are classified as a designated beneficiary or an eligible design𒁃ated beneficiary. Either way, if they handle the account properly, then all of their distributions will be tax-free. The rules on inheriting an IRA can be complex, so ﷺconsider consulting a financial professional for more guidance.