Can my grandchildren be beneficiaries of my Roth IRA?

Photo: pixabay.com

Q. Can I set up my grandchildren as beneficiaries for my Roth IRA so they can use the stretch method of distribution for the Required Minimum Distributions?
— Grandma

A. You sure can, and you’re giving your grandchildren quite a gift.

Because they’re young, they will have lots of time to allow the Roth IRA to grow.

“If your grandchild is still a minor, you can name them as beneficiary but will have to designate a `custodian’ or trust to oversee the account until the child reaches adulthood,” said Nicholas Scheibner, a certified financial planner with Baron Financial Group in Fair Lawn.

The age of majority could be 18 to 21, depending on the state, he said.

Although a Roth IRA is not subject to Required Minimum Distributions (RMDs) while the original account owner is alive, the Roth IRA would be subject to RMDs once it passes to a beneficiary, Scheibner,

However, he said, the percentage of the required withdrawal should remain income-tax-free, and the benefit of expected tax-free growth outweighs this caveat.

“Remember, you can name multiple individual beneficiaries on your account, so if you have multiple grandchildren, they will need to open their own inherited Roth IRA account,” he said. “The RMD will be calculated on their life expectancy based on the Single Life Expectancy table from the IRS. “

Also, he said, make sure your custodian or plan has a provision for the inherited Roth IRA to use the life expectancy option, as some plans may require a five-year distribution of assets.

Email your questions to moc.p1566190788leHye1566190788noMJN1566190788@ksA1566190788.

This story was originally published on May 23, 2019.

NJMoneyHelp.com presents certain general financial planning principles and advice, but should never be viewed as a substitute for obtaining advice from a personal professional advisor who understands your unique individual circumstances.