To avoid paying taxes on an inherited Roth IRA, confirm that the original owner had held any Roth IRA for at least five tax years before death. When that five-year rule is satisfied, every dollar you withdraw comes out income-tax-free, whether it’s contributions, conversions, or decades of growth. The 10% early withdrawal penalty never applies to distributions taken after the owner’s death, so age isn’t a concern either. What you still have to manage is timing, because the SECURE Act forces most non-spouse beneficiaries to empty the account within ten years, and any money you pull out early loses future tax-free growth.
The Five-Year Clock You Inherit
Every Roth IRA has an aging clock that starts on January 1 of the tax year the original owner made their first contribution or conversion to any Roth IRA. If the owner opened a Roth in October 2020, the clock started January 1, 2020, and the account satisfied the rule on January 1, 2025. As a beneficiary, you inherit the owner’s clock. You don’t start a new one.1Internal Revenue Service. Publication 590-B (2025), Distributions from Individual Retirement Arrangements (IRAs)
Once the rule is met, the entire account is a qualified distribution to you. Nothing you take out shows up as income on your tax return, nothing pushes you into a higher bracket, and nothing counts toward modified adjusted gross income. That is the whole tax answer for most inherited Roth IRAs.
What Can Be Taxable When the Clock Hasn’t Run
If the owner died before the five-year mark, contributions and conversion amounts still come out tax-free, because the owner already paid income tax on those dollars. Only the earnings portion is taxable as ordinary income, and beneficiaries report taxable earnings on IRS Form 8606.2Internal Revenue Service. About Form 8606, Nondeductible IRAs
The ordering rules work in your favor here. The IRS treats money as coming out in this sequence:1Internal Revenue Service. Publication 590-B (2025), Distributions from Individual Retirement Arrangements (IRAs)
- Regular contributions first, always tax-free.
- Conversion and rollover amounts second, tax-free to the beneficiary, on a first-in, first-out basis.
- Earnings last, tax-free if the five-year rule is met, taxable as ordinary income if it isn’t.
You can often withdraw a large portion of a young Roth before you reach the taxable earnings layer. If earnings are going to be taxed, spreading withdrawals across multiple years within your distribution window helps keep any single year from pushing you into a higher bracket. Waiting until the account satisfies the five-year rule, then withdrawing, converts otherwise taxable earnings into tax-free distributions.
Spouse Option: Treat It as Your Own
A surviving spouse can elect to treat the inherited Roth as their own account. This is the strongest tax position available to any beneficiary. The account is retitled under the spouse’s name and Social Security number, and from that point the IRS treats it as if the spouse had always owned it.
Two things follow. The account is no longer subject to the 10-year rule or any required minimum distributions. Roth IRAs have no lifetime RMD requirement for the owner, so a surviving spouse can leave the full balance untouched for the rest of their life.3Internal Revenue Service. Retirement Plan and IRA Required Minimum Distributions FAQs And the money keeps growing tax-free, potentially for decades, until the spouse’s own beneficiaries inherit it.
Keeping it as an inherited Roth IRA instead is rarely the better move. The main case for doing so is when the spouse is younger than 59½ and needs access to earnings without the age-based restrictions that apply to a Roth they own outright.
Non-Spouse Beneficiaries and the 10-Year Rule
Most non-spouse beneficiaries, including adult children, siblings, and friends, must withdraw the entire account by December 31 of the tenth year after the owner’s death.4Office of the Law Revision Counsel. 26 USC 401 – Qualified Pension, Profit-Sharing, and Stock Bonus Plans If a parent died on March 15, 2025, the account has to be empty by December 31, 2035.
Inherited Roth IRAs have a meaningful edge over inherited traditional IRAs here. Because Roth owners are never subject to lifetime RMDs, the IRS treats the owner as having died before their required beginning date. That means non-spouse beneficiaries of an inherited Roth are not required to take annual distributions during the 10-year window.5Internal Revenue Service. Retirement Topics – Required Minimum Distributions (RMDs) You can take nothing for nine years and withdraw everything in year ten, spread it evenly, or empty it on day one. The only hard deadline is the end of year ten.
When the five-year rule is satisfied and every distribution is tax-free, the strategy that preserves the most value is straightforward: delay withdrawals as long as possible within the 10-year window. There is no income-tax reason to take money out sooner, and every year the account stays open is another year of tax-free growth you keep.
Beneficiaries Who Can Still Stretch Over Life Expectancy
A short list of beneficiaries is exempt from the 10-year rule and can stretch distributions over their life expectancy. The IRS calls them eligible designated beneficiaries:6Internal Revenue Service. Retirement Topics – Beneficiary
- A surviving spouse, who also has the option of treating the account as their own.
- A minor child of the deceased owner, until age 21. Once the child turns 21, a new 10-year clock starts on the remaining balance.
- A disabled or chronically ill individual, for the duration of their life.
- An individual not more than 10 years younger than the deceased.
Only minor children of the account owner qualify under the minor-child exception. Grandchildren, nieces, and nephews do not, even if they’re minors. And when an eligible designated beneficiary eventually dies, the person who inherits next doesn’t get another life expectancy stretch. That successor must empty the balance within 10 years.4Office of the Law Revision Counsel. 26 USC 401 – Qualified Pension, Profit-Sharing, and Stock Bonus Plans
Moving the Account Without Creating a Tax Bill
Non-spouse beneficiaries cannot roll an inherited Roth IRA into their own Roth IRA. The 60-day rollover method is off the table too. If a non-spouse beneficiary takes a distribution intending to redeposit it, the IRS treats the withdrawal as permanent, and there is no way to undo it.
The only way to change custodians is a direct trustee-to-trustee transfer. The money moves between institutions without you ever touching it. The receiving account has to be titled as an inherited IRA in the deceased owner’s name for your benefit.
If you inherit Roth IRAs from more than one person, you can’t combine them into a single inherited account. Each stays separate with its own distribution timeline. You can consolidate multiple inherited Roth IRAs from the same deceased owner held at different custodians, but accounts from different decedents have to stay apart.
Trusts, Estates, and Charities as Beneficiaries
A charity named as beneficiary receives the distribution free of income tax, because charities are tax-exempt. The charity still has to withdraw the funds within five years, but there is no tax consequence to that timeline.
An estate named as beneficiary is treated differently. Because Roth owners are never subject to lifetime RMDs, the IRS treats the owner as having died before their required beginning date, and for non-designated beneficiaries like estates that means the entire account must be distributed within five years of the owner’s death. The estate then passes the funds to the heirs named in the will. This substantially shortens the period of tax-free growth compared to naming individuals directly.
Trusts can be beneficiaries, but only trusts meeting specific IRS requirements qualify for see-through treatment, which lets the distribution rules apply based on the individual trust beneficiaries rather than the trust itself. The trust has to be valid under state law, irrevocable or set to become irrevocable at the owner’s death, and its beneficiaries have to be identifiable from the trust document. Documentation must be provided to the IRA custodian by October 31 of the year following the owner’s death.7Internal Revenue Service. Internal Revenue Bulletin 2024-33 A qualifying trust generally follows the 10-year rule based on its oldest beneficiary. One that fails to qualify is treated like an estate and must distribute all assets within five years.
The 25% Penalty for Missing the Deadline
Failing to withdraw the required balance by the end of your distribution period triggers an excise tax of 25% on the amount you should have taken out.8Office of the Law Revision Counsel. 26 USC 4974 – Excise Tax on Certain Accumulations in Qualified Retirement Plans If $150,000 remained past the deadline, the penalty would be $37,500.
Correcting the shortfall within two years drops the penalty from 25% to 10%.8Office of the Law Revision Counsel. 26 USC 4974 – Excise Tax on Certain Accumulations in Qualified Retirement Plans You report the missed distribution and request the reduced penalty on IRS Form 5329, filed with your tax return for the year of the shortfall. Include a statement explaining why the deadline was missed and what you’ve done to fix it. The IRS does waive the penalty entirely when the failure was due to reasonable error and you’ve already withdrawn the required amount.
This penalty applies even though the underlying Roth distributions would have been tax-free. The excise tax isn’t about the income character of the money. It’s a penalty for keeping funds in a tax-advantaged account past the deadline.
Medicare Premiums and the NIIT
Qualified inherited Roth distributions don’t count toward modified adjusted gross income, so they don’t trigger Medicare’s income-related monthly adjustment amounts. Non-qualified distributions are different. Taxable earnings count as ordinary income and increase MAGI, which can push a beneficiary on Medicare into a higher premium tier. In 2026, single filers with modified adjusted gross income above $109,000 and joint filers above $218,000 start paying surcharges on Part B and Part D, with the surcharge increasing across several income tiers.9Medicare. 2026 Medicare Costs
A common misconception is that inherited Roth distributions can trigger the 3.8% net investment income tax. They cannot. The IRS excludes distributions from Roth IRAs and other qualified retirement plans from net investment income under IRC Section 1411.10Internal Revenue Service. Questions and Answers on the Net Investment Income Tax Taxable Roth earnings can raise your overall MAGI enough to push other investment income across the NIIT threshold, but the Roth distribution itself is never subject to that surtax.