Inheriting a Roth IRA from Relative

[billyripken]

I recently lost a loved one and am inheriting an Roth account valued at 240k currently.   My personal annual taxable income normally runs around 135k.   I reside in a sunbelt state with state income tax.   What is anyone's take from a tax perspective of whether I should take a lump sum vs. distributions of the Roth?   I don't "need" any of the Roth money immediately, but on the other hand I do have some interest in putting the entire situation to rest and taking the lump sum, so long as there isn't an overwhelming tax reason why I should take distributions.

[Spork]

I haven't actually run numbers ... but my suspicion is that if you roll it into an inherited IRA and take RMDs, you'll get better tax treatment. 

If you want to put it behind you as quickly as possible with RMDs... take more then the minimum distribution -- UP TO (but not over) the top of your current tax bracket. 

[Heroes821]

http://www.schwab.com/public/schwab/investing/retirement_and_planning/understanding_iras/inherited_ira/withdrawal_rules

This has some details on Roth Non-spouse inheritance.  I'm sure a CPA or tax attorney would be more helpful, but it appears that if the ROTH was over 5 years old you can lump sum w/o taxes, or you can take RMDs for years and let it continue to grow tax free.

As much as putting it behind you might be helpful mentally, RMDs might give you better growth than moving it all into a taxable account.

[Spork]

I inherited a Roth IRA.  There is no taxes either way as your relative put after tax dollars in to fund the Roth.  The different is that if you take RMDs your money will grow within the Roth for longer.  You will be wealthier in the long run to do the RMD method.  It's relatively painless for me - Fidelity calculates the RMD once a year and automatically sweeps the 1/12th of the money once a month to an individual taxable account with them, which I can then use for whatever.

Interesting.  I didn't realize that non-spousal beneficiaries were able to retain the non-taxed distributions.  Any idea if that extends to the OP's state taxes?

[seattlecyclone]

Yeah, there's no good reason to take out more from an inherited Roth IRA that either the RMD or what you need that year, whichever is bigger. Ride that tax-free growth train until you have to get off.

[Bicycle_B]

I have less income and inherited a smaller Roth (think 20k).  I take just the RMD.  There's no advantage in putting the money anywhere else.