At some point, all IRAs, both Roth and traditional, must have their balances distributed to their account owners. The key difference between the two types of IRAs, is that you don't have to take any distributions from a Roth IRA during your lifetime.

Key Takeaways

  • You have to take required minimum distributions (RMDs) from a traditional IRA starting at age 70½.
  • Unlike traditional IRAs, there are no RMDs for Roth IRAs during the account owner’s lifetime.
  • Your account's beneficiaries may have to take RMDs to avoid penalties.

Required Minimum Distribution Rules for Roth IRAs

Required minimum distributions (RMDs) represent the minimum amount of money you must take out of your retirement account each year. That amount is specified by the Internal Revenue Service (IRS) and, in the case of traditional IRAs, taxed as income at your current tax rate. The IRS imposes a 50% penalty on any missed RMDs.

You have to start taking RMDs from a traditional IRA by April 1 of the year after you turn 70½. That’s true even if you don’t need the money for living expenses. The amount of your RMD is based on your prior year’s account balance (as of Dec. 31) and an IRS table based on your age. Many other types of retirement accounts, including 401(k) plans, follow a similar set of rules. Almost always, you have to pay income taxes on those withdrawals. Even if you don't, you no longer get tax-free growth on that money.

One of the great advantages of Roth IRAs is that they aren’t subject to the same RMD rules. If you have a Roth IRA, you don’t have to take RMDs during your lifetime. So if you don’t need the money, you can leave the funds untouched and let the account grow tax-free (for decades) for your heirs. Your beneficiaries—other than a surviving spouse—must take RMDs later, however.

What are the Required Minimum Distributions for Roth Beneficiaries?

When you leave a Roth IRA to your beneficiaries, they become subject to a new set of RMD rules. They will also face a 50% penalty (or “excise tax”) if they don't take the distributions as required, so it pays to understand the rules—and make sure your beneficiaries do, as well.

The rules differ depending on whether the Roth is inherited by a spouse or by someone else.

Options for spouses

  • Do a spousal transfer (treat as your own). You transfer the assets into your own Roth IRA (an existing one or a new one). You’re subject to the same distribution rules as if you were the original account holder.
  • Open an inherited IRA: Life expectancy method. In this case, you transfer the assets into an inherited IRA in your name. You have to take RMDs, stretched over your life expectancy. But you can postpone distributions until your spouse would have reached age 70½, or Dec. 31 of the year after your spouse passed away. Distributions aren’t taxed if the five-year rule on inherited IRAs has been met.
  • Open an inherited IRA: 5-year method. You transfer the assets into an inherited IRA in your name. You can spread your distributions over time, but the account must be fully distributed by Dec. 31 of the fifth year after your spouse passed away. Distributions aren’t taxed if the five-year rule has been met.
  • Take a lump-sum distribution. In this case, the Roth IRA assets are distributed to you all at once. If the account was less than five years old when your spouse passed away, the earnings will be taxable.

Options for other beneficiaries

Someone who inherits a Roth IRA from a friend or non-spouse family member, has these options:

  • Open an inherited IRA: Life expectancy method. You transfer the assets into an inherited IRA in your name. You have to start taking RMDs by Dec. 31 of the year following the previous account holder’s death. Distributions are stretched over your life expectancy and aren’t taxed if the five-year rule has been met.
  • Open an inherited IRA: 5-year method. You transfer the assets into an inherited IRA in your name. You can spread your distributions over time, but the account must be fully distributed by Dec. 31 of the fifth year following the previous account holder’s death. Distributions aren’t taxed if the five-year rule has been met.
  • Take a lump-sum distribution. The Roth IRA assets are distributed to you all at once. If the account was less than five years old when the account holder died, the earnings will be taxable.

If you plan to leave a Roth IRA to your heirs, make sure they know the rules on required minimum distributions.

Tax-Free Growth, Tax-Free Income: Pass It On

A Roth IRA can be an excellent wealth-transfer vehicle because you don’t have to draw down the account during your lifetime, and distributions are generally tax-free for your heirs.

One challenge with Roth IRAs is that your beneficiaries may not be aware of the RMD rules. So if you have a Roth IRA, do your beneficiaries a favor. Let them know the basics on distributions—or they'll get a costly lesson later, when they're hit with a 50% penalty on the amounts they should have withdrawn. As long as everyone understands the rules, you and your heirs can enjoy years of tax-free growth and tax-free income from your Roth IRA.