What Happens to Your Roth IRA When You Inherit It?

31 August 2025

So, you’ve inherited a Roth IRA. First off, congratulations—well, sort of! While receiving an inheritance typically means someone close to you has passed, it also means you now have a financial asset that can impact your future. But before you start making big plans, you might be wondering: What happens to a Roth IRA when you inherit it?

Don’t worry, we’ve got you covered. Let’s break it all down in a simple, straightforward, and maybe even a little fun way. Think of it like untangling a pair of headphones—confusing at first, but manageable with the right approach.

Understanding the Basics of an Inherited Roth IRA

A Roth IRA is one of the best retirement savings tools because it allows tax-free growth and tax-free withdrawals in retirement. But when someone passes away and leaves a Roth IRA behind, the rules change a bit for the person inheriting it.

Who Can Inherit a Roth IRA?

Roth IRAs can be inherited by:

- A spouse
- A non-spouse beneficiary (like a child, friend, or charity)
- Multiple beneficiaries

Each type of beneficiary has different rules to follow, so let’s dive into how each situation plays out.

Inheriting a Roth IRA as a Spouse

If you're the lucky spouse inheriting a Roth IRA, you’ve got some flexible options. The IRS gives spouses more choices than any other beneficiary type. Here’s what you can do:

1. Treat It as Your Own

This is the simplest option. You can roll the inherited Roth IRA into your own Roth IRA, and it will act just like it was always yours. That means:

- No required minimum distributions (RMDs) (because Roth IRAs don’t require them for the original owner!)
- The money keeps growing tax-free
- You can withdraw earnings tax-free after age 59½ (as long as the account has been open for at least five years)

2. Open an Inherited Roth IRA

Let’s say you don’t want to combine it with your own account. You can instead keep it as an inherited Roth IRA. The key difference? You might have to start withdrawing money depending on when your spouse passed away.

- If your spouse was already taking required distributions (which they wouldn’t be if it’s a Roth), you must continue them.
- If not, you can delay distributions until you turn 73.

This option is great if you don’t want to mix your finances but still want control over distributions.

Inheriting a Roth IRA as a Non-Spouse

If you’re the child, friend, or distant cousin who inherited a Roth IRA, here’s where things change. The IRS isn’t as generous with non-spouse beneficiaries.

1. The 10-Year Rule

If someone other than a spouse inherits a Roth IRA, you typically must withdraw all funds within 10 years of the original owner’s passing. That means:

- You can take distributions whenever you want (all at once, spread out, or at the end of the 10 years).
- No taxes on withdrawals (as long as the original account was open for at least five years).
- If you don’t empty the account by year 10, brace yourself for a 50% penalty on the remaining balance!

So, if you were hoping to let the account grow tax-free forever, sorry—Uncle Sam has other plans.

2. Exceptions to the 10-Year Rule

Some lucky beneficiaries get to skip the 10-year deadline. You can stretch withdrawals over your lifetime if you’re:

- A minor child of the deceased (until you reach adulthood).
- Disabled or chronically ill.
- Less than 10 years younger than the original account owner.

If you qualify, you can take smaller required minimum distributions (RMDs) over your life expectancy instead of draining the account in 10 years.

What Happens to the Taxes?

Now, here’s the good news: Roth IRA withdrawals are tax-free, as long as the account was open for at least five years. That means no tax bomb waiting for you at the end of the 10-year rule.

But there’s a small catch—growth within the account stays tax-free only if you follow the IRS withdrawal rules. If the account is younger than five years when you inherit it, any earnings you withdraw will be taxable.

The Best Strategy for an Inherited Roth IRA

So, what should you do if you inherit a Roth IRA? Here’s a simple game plan:

If You’re a Spouse:

👉 Roll it into your own Roth IRA if you want full control and tax-free growth.

👉 Keep it as an “inherited Roth IRA” if you need to take withdrawals sooner.

If You’re a Non-Spouse:

👉 Keep the money growing for as long as possible. Take withdrawals only when necessary.

👉 Be sure to withdraw everything within 10 years to avoid penalties.

👉 If you qualify for the special lifetime distribution rules, take advantage of them! It can keep your money growing tax-free for longer.

Common Mistakes to Avoid

Even though Roth IRAs are tax-friendly, some mistakes could cost you. Here are a few pitfalls to watch out for:

- Forgetting the 10-Year Rule – Not withdrawing funds in time could lead to a 50% penalty on any leftover balance.
- Taking Earnings Too Soon – If the account hasn’t been open for five years, any earnings you take out will be taxable.
- Not Checking Your Distribution Options – You might have more flexibility than you think, so know the rules before making withdrawals.

Final Thoughts

Inheriting a Roth IRA can be a financial blessing, but it comes with some important rules. Whether you're a spouse or a non-spouse beneficiary, understanding your options can help you make the most of your inheritance.

Think of it like getting a golden ticket—handle it wisely, and it can provide years of tax-free income. Mess it up, and you might owe the IRS more than you expected.

No matter what, take your time, review the rules, and maybe even chat with a financial advisor to make the smartest move. After all, money doesn’t come with an instruction manual—unless you count this guide!