The 2 Situations Where You Will Have a Required Minimum Distribution (RMD) From Your Roth Accounts
For many investors, Roth accounts—such as Roth IRAs and Roth 401(k)s—are attractive for their tax advantages, allowing for tax-free withdrawals in retirement. However, there are certain circumstances where you might still be subject to Required Minimum Distributions (RMDs) from these accounts. Understanding these situations is crucial for effective retirement planning. Here are the two scenarios in which you will have an RMD from your Roth accounts:
1. Roth 401(k) Accounts After Age 72
While Roth IRAs are generally exempt from RMDs during the account holder’s lifetime, this tax advantage does not extend to Roth 401(k) accounts. Once you turn 72 (or 70½ if you reached this age before January 1, 2020), the IRS mandates that you begin taking RMDs from your Roth 401(k) just like traditional 401(k) accounts.
The good news is that you can roll over your Roth 401(k) to a Roth IRA before reaching RMD age. This conversion would avoid any RMD requirements, enabling the funds in your Roth IRA to grow tax-free without the pressure to withdraw funds during your retirement years.
2. Inherited Roth Accounts
The second situation where RMDs come into play involves inherited Roth accounts. If you inherit a Roth IRA, you must take RMDs if you are not a spouse and you fall into the non-designated beneficiary category. Under the SECURE Act, non-spouse beneficiaries must withdraw the entire balance of the inherited account within ten years of the original account owner’s death. This means that while your distributions will generally be tax-free, you will still be required to withdraw funds according to the established timeline.
Additionally, if you inherit a Roth 401(k), the same RMD rules apply. Non-spouse beneficiaries will be subject to RMDs, and if the account is not rolled into a Roth IRA, the 10-year withdrawal timeline will need to be adhered to—again, ensuring that you take distributions according to IRS requirements.
Conclusion
While Roth accounts are known for providing tax advantages, it is essential to keep in mind that circumstances such as inheriting an account or reaching the age for mandatory withdrawals from a Roth 401(k) can result in RMDs. Understanding these nuances allows individuals to better strategize their retirement withdrawals, manage their tax implications, and make informed decisions that align with their financial goals. Always consider consulting with a financial planner or tax advisor to navigate your retirement account withdrawal strategy effectively.
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RMD requirement for 401k Roth is removed now.
I think this video is out of date. Assuming I have it right, the IRS has determined that annual withdrawals (RMDs) are required under the 10 year rule. Is that not correct? If it is then anyone watching it should be aware that not taking RMDs will cause problems under the 10 year rule.
BTW Eric, I really like your videos, great stuff.
Eric thanks for the continued great information! Planning to retire this year (65) and have an employer Roth 401K. Due to income I've not been able to invest in a standard Roth. So looks like I'll need to roll this over this year so I can have access to this by the time I reach my early 70's!
If the children inherited an Roth IRA from the parents after 2020, can the children rollover the RMD of parents' Roth IRA to the children's Roth IRA? Thanks!
Kitces webinar last week is saying proposed IRS rules are clarify when there is an rmd or not with 10 year rule. It depends on if retirement owen died before their rmd date or not. Complicated stuff
Great video, short, precise with example….really appreciate your free service to fellow citizens.
Safeguard Wealth Management, I do understand this, but most government things can get confusing. Thanks.
Great video, Eric. Is there any reason not to rollover a 401K to an IRA (both deferred and Roth), other than the 5 year Roth IRA rule?
I have a Roth 401k. Opened a Roth IRA at age 55. Can I roll the Roth 401k into the Roth IRA at age 60 and have immediate access or do I need to wait 5 years?
I don't think I will need access to those funds but would like to know the answer to my question just in case.
I was interested in the link to the video on the 5 year rule but couldn’t find it anywhere on the video. Was it just me?
Eric is so dialed in on all this.
Great video! might be a few government retirees getting shocked!
Eric, great video. Because words matter (and the government obfuscates words) . . . consider further clarity. The government does not use the words ROTH 401k for it's Thrift Savings Plan (TSP) Roth. Thus, there is misunderstanding among millions in the military and civil service that they do not have RMDs on their TSP Roth account. Unfortunately, those folks will figure it out after age 72, after a 50% tax penalty, and after the correction zone where they can do anything (forward looking tax planning) about it. If I'm wrong shout me down. Best.
if you are designated beneficiary (brother) that is less then 10 year younger them the person that pass away can you take RMD over your life time for ROTH? also if the roth account was made 3 year ago is the gains still tax free?
Another great video from Eric at Safeguard Wealth Management!
Thanks Eric!