Reinvest or spend required inherited roth distributions

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A440
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Reinvest or spend required inherited roth distributions

Post by A440 »

Pursuant to the Secure Act, we have to liqudate an inherited Roth IRA in 10 years. The plan is to take 1/10 distribution each year. The distribution is tax-free. Does it make sense to reinvest something that is tax-free into a taxable account, or should we just use it towards our yearly expenses? The amount is ~$10,000/year.
I don't know what the future holds, but I know who holds my future.
Jovby
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Re: Reinvest or spend required inherited roth distributions

Post by Jovby »

Do you have to take RMDs or can you wait and take it all in year 10?

Once you take a distribution then it’s income and should be used according to your financial plan. Where it came from doesn’t it really matter.
chemocean
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Re: Reinvest or spend required inherited roth distributions

Post by chemocean »

My understanding is that distributions are not required for Roth accounts. Is there any reason not to leave the funds in the Roth account for the 10 years that will allow the investments to grow tax-free and withdraw tax free by the end of the appropriate calendar year?
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Watty
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Re: Reinvest or spend required inherited roth distributions

Post by Watty »

If you are working and would not otherwise be maxing out all your other retirement accounts then you can used the inherited Roth distribution to indirectly fund the other retirement accounts.

For example you could withdraw $900 a month from the inherited Roth and also increase your monthly 401k contribution by $900 a month. If you have access to a Roth 401k then you could even put the $900 a month into that.
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A440
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Re: Reinvest or spend required inherited roth distributions

Post by A440 »

chemocean wrote: Sat May 27, 2023 8:21 am My understanding is that distributions are not required for Roth accounts. Is there any reason not to leave the funds in the Roth account for the 10 years that will allow the investments to grow tax-free and withdraw tax free by the end of the appropriate calendar year?
True, we could wait until year 10 and take the full amount.
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A440
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Re: Reinvest or spend required inherited roth distributions

Post by A440 »

I plan to rebalance each of the inherited IRA's to a 3-fund portfolio. Normally, bonds are put in T-IRA's not Roths. However, in this case the funds from both traditional and Roth must be fully withdrawn by year 10. If I'm trying to keep to the 3-fund method with a 70/30 mix, can I just allocate each IRA with the same 3-fund holdings and AA mix? Just trying to keep things simple.
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SuzBanyan
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Re: Reinvest or spend required inherited roth distributions

Post by SuzBanyan »

A440 wrote: Mon May 29, 2023 2:22 pm I plan to rebalance each of the inherited IRA's to a 3-fund portfolio. Normally, bonds are put in T-IRA's not Roths. However, in this case the funds from both traditional and Roth must be fully withdrawn by year 10. If I'm trying to keep to the 3-fund method with a 70/30 mix, can I just allocate each IRA with the same 3-fund holdings and AA mix? Just trying to keep things simple.
Sure, you can do that. But you will be increasing your taxes without increasing your earnings by doing that. How much of an increase will depend on the relative balances in traditional and Roth. If either account is relatively small, then the increase will be minor.

As an alternative, you can place all your fixed income in the traditional inherited IRA, which is likely to grow the least. You might then need to rebalance after you take each annual distribution, depending on what you are doing with the distributions. If the tIRA distributions allow you to max out other traditional retirement accounts, you can just invest the fixed income you received from the traditional inherited into fixed income in your personal traditional retirement account.
Stuckinmn
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Re: Reinvest or spend required inherited roth distributions

Post by Stuckinmn »

A440 wrote: Sat May 27, 2023 10:24 am
chemocean wrote: Sat May 27, 2023 8:21 am My understanding is that distributions are not required for Roth accounts. Is there any reason not to leave the funds in the Roth account for the 10 years that will allow the investments to grow tax-free and withdraw tax free by the end of the appropriate calendar year?
True, we could wait until year 10 and take the full amount.
To me it's clearly better to take the roth in one lump sum at the very end of 10 years. Keep that tax free status as long as you can, and in this case that's 10 years.

Now with inherited regular ira it makes sense to do the 1/10 every year (or even more in low income years) so the large lump sum doesn't push you into a crazy bracket.
MathWizard
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Re: Reinvest or spend required inherited roth distributions

Post by MathWizard »

A440 wrote: Sat May 27, 2023 7:47 am Pursuant to the Secure Act, we have to liqudate an inherited Roth IRA in 10 years. The plan is to take 1/10 distribution each year. The distribution is tax-free. Does it make sense to reinvest something that is tax-free into a taxable account, or should we just use it towards our yearly expenses? The amount is ~$10,000/year.
If you can, and are not already contributing to Roths, take the distribution and contribute to your own Roth.
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