Do Roth IRAs Have RMDs?

No RMDs on Roth IRAs

For traditional, SEP, and SIMPLE IRAs, the IRS imposes required minimum distributions starting on April 1 of the year you turn age 73. The IRS calculates your minimum required withdrawal amount using two data points: the value of your IRA assets on Dec. 31 of the previous year and your expected life span.

The purpose of RMDs is to make sure you pay taxes on the funds in your IRA since your contributions to those types of IRA accounts are initially tax-free. Because you don't get a tax break on contributions to your Roth IRA, qualified Roth IRA withdrawals are tax-free. There are no RMDs for Roth accounts because the IRS has already collected its share.

RMDs on inherited Roth IRAs

The distribution rules for Roth IRAs do change once you pass away. The exact withdrawal requirements depend on who inherits your Roth fund. Your spouse, for example, can roll over the Roth assets into his or her own Roth IRA. The IRS does not impose RMDs on those inherited funds while your spouse is living.

Non-spouse beneficiaries, including children, don't have that rollover option. Those types of beneficiaries can either withdraw the funds immediately or transfer them to an inherited Roth IRA. Generally, moving the money to an inherited Roth IRA is the better choice because it enables the money to continue to grow, tax-deferred.

Ten-year rule for inherited Roth IRAs

If you inherit a Roth IRA in 2020 or later, then the account must be fully depleted within 10 years of the original owner's death. Withdrawals are tax-free if the funds have been in the account for five years or more.

Because a Roth IRA has no RMDs for the original owner, it's a powerful tool for building wealth and a financial legacy. Your beneficiaries, too, will enjoy years of tax-deferred earnings growth after inheriting the account.