By Sarah Brenner, JD
Director of Retirement Education
QUESTION:
Are there any penalties/consequences/tax issues if I move money from a Roth IRA to start a new Roth IRA at another company?
Thanks,
Ramona
ANSWER:
Hi Ramona,
Roth IRA funds are portable. There are no penalties or negative tax consequences when you move your funds from one Roth IRA to another. For example, the five-year holding period for qualified distributions of earnings does not reset. Instead, it continues on. One caveat – if you are thinking of moving your account, it is best to do a direct trustee-to-trustee transfer. Doing a 60-day rollover is more risky and comes with more rules.
QUESTION:
If a spouse beneficiary dies before retitling or taking any action on an inherited IRA, who inherits the account? Would it be the contingent beneficiaries of the original IRA owner? Or, is it the estate of the spouse beneficiary?
ANSWER:
This is a question that comes up a lot. When an IRA owner dies, the funds immediately belong to the beneficiary. This is true even if no paperwork officially retitling the account is done. Assuming no disclaimer, the contingent beneficiaries no longer matter because the account has been inherited by the primary beneficiary. If the spouse (who is the primary beneficiary in this case) dies before naming their own beneficiary on the account, then the IRA custodial document’s default beneficiary will inherit the funds. Often, the default beneficiary is the estate.
If you have technical questions you would like to have answered, be sure to submit them to mailbag@irahelp.com, to be answered on an upcoming Slott Report Mailbag, published every Thursday.