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My mother died this year and I inherited her Roth IRA. I do not need the income from her account and I do not need to pay any extra taxes. I am 61 years old and I plan to be on Medicare when I turn 65.

My plan is to leave the money in the Roth IRA for 10 years and then take it out. I was told by an attorney, who is also a financial planner, that I should take it out over several years. I feel she is wrong.

Is there something I am missing?

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  • Does the planner suggest you let her manage the funds as you pull them out instead? She might be acting in self-interest (not necessarily unethically).
    – D Stanley
    Commented Oct 24, 2023 at 20:32
  • Note that if the account is more than 5 years old you won't pay any taxes either way.
    – D Stanley
    Commented Oct 24, 2023 at 20:33

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Withdrawals from Roth IRA are tax free if the account is 5 years old. From the IRS:

Generally, inherited Roth IRA accounts are subject to the same RMD requirements as inherited traditional IRA accounts. Withdrawals of contributions from an inherited Roth are tax free. Most withdrawals of earnings from an inherited Roth IRA account are also tax-free. However, withdrawals of earnings may be subject to income tax if the Roth account is less than 5-years old at the time of the withdrawal

Assuming you're not an eligible designated beneficiary, you have to follow the 10-year rule. If the account is already >5 years old, then you can withdraw it any time in the next 10 years, tax free. Otherwise - wait until the holding requirement is met and withdraw then.

Since it is tax free, you do not need to plan withdrawals other than satisfying the holding period.

It would probably make sense to keep it in Roth for as long as possible, assuming you expect more earnings, so that all the additional earnings would be tax free. The risk is that the 10 year period is not all that long, and you may sustain losses instead of earnings.

You should probably ask the financial planner for her rationale. She may be considering the potential market volatility and trying to balance the tax benefit of appreciation with the potential loss of value if market goes against you.

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    Qualified Roth withdrawals are not counted as income, so either the salesperson was dumb, mistaken (e.g. didn't catch that it was a Roth IRA), or misleading...
    – D Stanley
    Commented Oct 24, 2023 at 20:57
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    @Bob well... It really depends on the situation. Maybe she didn't realize it's Roth, maybe there are some FAFSA or other financial aid eligibility considerations, you'll need to dig into details
    – littleadv
    Commented Oct 24, 2023 at 20:57
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    And may need to keep an eye out for IRS rulings clarifying the 10-year withdrawal rules.
    – Jon Custer
    Commented Oct 24, 2023 at 21:03
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    +1, but to this remark "you may sustain losses instead of earnings." OP should be able to invest it as they wish, inside the IRA or out. They have the same risk, either way, no? If you could snap your finger and have all of your non-retirement assets suddenly be inside a Roth, how could that ever be "worse"? Commented Oct 25, 2023 at 10:37
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    @JTP-ApologisetoMonica losses in taxable accounts can offset taxable gains, losses in retirement accounts are useless. So if you expect the market to go down, you'd probably want to make use of it on your taxes. Since the time horizon is not that long here (<10 years), that's definitely something I'd consider.
    – littleadv
    Commented Oct 25, 2023 at 17:23

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