Strategies to ‘stretch’ an inherited Roth IRA


Q. I have three daughters and one of them is going to be the executor of our estate. I would like to leave some instructions for her on how to “stretch” our Roth IRAs. Specifically, what do my wife and I do when one of us dies and what does my daughter need to do when we both have died? I would like them to inherit our Roths and combine them into their own Roths.
— Dad

A. We’re glad you’re planning ahead. Giving guidance to the executor of your estate will make that person’s job much easier.

But you may not be able to accomplish your goal here.

First, leaving money for as long as possible in a Roth IRA is beneficial because those dollars will continue to grow tax-free, said Michael Pappachristou, a certified financial planner with RegentAtlantic in Morristown.

He said when an individual dies, they can leave Roth assets to the next generation. Those assets can then be “stretched” throughout the inheritor’s lifetime while continuing to grow tax-free.

Let’s dig deeper into your situation.

When one spouse dies, they can leave their Roth IRA to the surviving spouse, who may elect to treat those assets as their own Roth IRA, Pappachristou said.

“In that case, they do not have to take required distributions from the Roth IRA,” he said. “The surviving spouse can take tax-free distributions from the Roth after age 59 ½ – as long as the account has been open for five years.”

If the goal is to maximize tax-free assets for the next generation, then distributions should be avoided, he said. Then, once the surviving spouse passes, those Roth assets can be passed on to the next generation.

Here, there is a decision point.

The couple’s children can elect to open an Inherited Roth IRA and distribute the Roth assets over their lifetimes, open an Inherited IRA and distribute the proceeds over five years or take a lump sum distribution.

“The best way to maximize the benefits of Roth IRAs is to choose the life expectancy method, which states that the inheritor must take required minimum distributions commencing in the year following the account owner’s death,” he said. “These distributions can be relatively small depending on the inheritor’s age, which means money is always left in the account to grow tax-free.”

Your daughter can work with the custodian of your accounts to move them into your heirs’ names.

Having conversations with your children about these strategies could prove to be beneficial and should guide them towards making the right decision when the time comes, he said.

“If clients are very serious about their children electing the stretch option, they can leave the Roth IRA to a trust that mandates the execution of this strategy,” he said. “The caveat is that it limits the beneficiaries’ flexibility to utilize the funds. Furthermore, drafting the trust properly can be complicated.”

But this is important to note: Because the assets are inherited, they cannot be combined with Roth IRAs that the children may already have established. The difference is that they must take distributions from inherited assets, but not from Roth accounts titled in their names, Pappachristou said.

Email your questions to moc.p1573567628leHye1573567628noMJN1573567628@ksA1573567628.

This story was originally published on May 16, 2019. 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.