In most cases, an inherited Roth IRA is not taxable at the federal level. Contributions the original owner already paid tax on come out tax-free no matter what. The earnings come out tax-free too, as long as the original owner’s first Roth IRA had been open for at least five tax years before they died. Miss that five-year mark and only the earnings portion of your withdrawal gets taxed as ordinary income. Your contributions-first ordering, your beneficiary category, and your withdrawal deadline all shape how the rules apply to you, but the basic answer holds for most heirs.
The Five-Year Rule Decides Whether Earnings Are Taxed
One question determines whether any tax is owed on the growth inside the account: had the original owner held a Roth IRA — any Roth IRA — for at least five tax years before they died?1Internal Revenue Service. Retirement Topics – Beneficiary
The clock starts on January 1 of the year the owner made their first contribution to any Roth IRA, not necessarily the one you inherited. If your parent opened a Roth IRA in March 2020, the five-year period began January 1, 2020, and was satisfied on January 1, 2025.
The clock does not restart when you inherit. You step into the owner’s timeline. If they had held a Roth IRA for seven years before passing away, you meet the five-year rule from day one, and every dollar you withdraw — contributions and earnings alike — comes out free of federal income tax.
If the five-year mark had not been reached, the earnings portion of any withdrawal you take before it is reached gets added to your gross income and taxed at your ordinary rate, which runs from 10% to 37%.2Internal Revenue Service. Federal Income Tax Rates and Brackets Before you take out more than the account’s contribution balance, ask the custodian when the original owner first opened a Roth IRA. They should have it on file.
Contributions Always Come Out Tax-Free, and They Come Out First
Every dollar the owner contributed had already been taxed. That basis passes to you clean: you owe nothing on those dollars when you withdraw them, regardless of the account’s age, your age, or how you’re classified as a beneficiary.1Internal Revenue Service. Retirement Topics – Beneficiary
The IRS treats contributions as the first dollars leaving the account. Say the account holds $200,000 in contributions and $80,000 in earnings. Your first $200,000 of withdrawals is entirely tax-free. The $80,000 in earnings is the last money out.
This ordering rule matters most when the five-year requirement has not been met. You can still pull a large share of the inheritance immediately without any tax hit, because you’re only touching the already-taxed contribution layer. Ask the custodian to break out contributions versus growth so you know where the line sits.
Your Withdrawal Deadline Depends on Who You Are to the Owner
Whether distributions are taxable is one question. When you have to take them is another, and the answer depends on your relationship to the original owner.
Surviving Spouses
A surviving spouse has the most flexibility.1Internal Revenue Service. Retirement Topics – Beneficiary You can roll the account into your own Roth IRA and become the owner. Once you do, there are no required distributions during your lifetime, and the money keeps growing tax-free for as long as you leave it alone. The tradeoff: standard Roth IRA rules then apply, so if you’re under 59½ and you pull earnings, the 10% early withdrawal penalty may hit that portion.
Alternatively, you can keep the account as an inherited Roth IRA and take distributions based on your own life expectancy. Distributions from an inherited account carry no 10% early withdrawal penalty regardless of your age. That’s the safer path if you’re under 59½ and expect to need some of the money before you get there. The five-year rule works the same either way.
Non-Spouse Beneficiaries: The 10-Year Rule
If you’re a non-spouse beneficiary who doesn’t fit one of the narrow exceptions below, you must empty the account by December 31 of the tenth year following the owner’s death.1Internal Revenue Service. Retirement Topics – Beneficiary
Within that window, timing is up to you. Withdraw it all in year one, spread it out, or let it ride until year ten. The only firm rule is that the balance hits zero by the deadline. And unlike inherited traditional IRAs, inherited Roth IRAs do not require annual minimum distributions during the 10-year period, so the money can compound untouched for the full stretch.
If the original owner had satisfied the five-year rule before death, every dollar coming out during those ten years is income-tax-free. It won’t lift your bracket or your AGI.
Eligible Designated Beneficiaries
Some beneficiaries are exempt from the 10-year deadline and can stretch distributions over their own life expectancy instead. The IRS limits this “eligible designated beneficiary” status to five categories:3Internal Revenue Service. Publication 590-B – Distributions From Individual Retirement Arrangements (IRAs)
- A surviving spouse.
- A minor child of the account owner. The child stretches distributions until age 21, when the 10-year clock starts. This covers the owner’s biological or adopted children only, not grandchildren, nieces, or nephews.
- A person who meets the IRS definition of disability under IRC Section 72(m)(7).
- A chronically ill individual, certified by a licensed health care practitioner as unable to perform daily living activities or as needing substantial supervision due to cognitive impairment.
- Anyone not more than 10 years younger than the owner. This often covers a sibling or a close-in-age friend.
If you qualify, you can take distributions over the longer of your own life expectancy or the original owner’s remaining life expectancy.1Internal Revenue Service. Retirement Topics – Beneficiary That preserves the tax-free growth for far longer than the 10-year rule allows.
The Penalty for Missing a Withdrawal Deadline
Missing a required withdrawal is expensive. The IRS charges a 25% excise tax on the amount you should have taken but didn’t.4Internal Revenue Service. Retirement Plan and IRA Required Minimum Distributions FAQs
Fix the shortfall within two years and the excise tax drops to 10%.4Internal Revenue Service. Retirement Plan and IRA Required Minimum Distributions FAQs You’ll file Form 5329 with the return for the year the distribution was due. Because inherited Roth IRA withdrawals are usually tax-free anyway, letting money sit past a deadline out of inattention is one of the more avoidable mistakes in this area.
Estate Tax Is a Separate System
Income tax is not estate tax, and a Roth IRA’s income tax advantage does not shield it from estate tax. The full fair market value of the account on the date of death is included in the owner’s gross estate,5Office of the Law Revision Counsel. 26 USC 2031 – Definition of Gross Estate even when it passes straight to a named beneficiary without going through probate.
Whether that actually triggers a tax bill depends on the estate’s overall size. Through 2025, the federal estate tax exemption sits at $13.99 million per individual, with a top rate of 40% on amounts above the exemption. The higher exemption under the Tax Cuts and Jobs Act is scheduled to expire after 2025, which would roughly halve it, adjusted for inflation, unless Congress extends it.6Internal Revenue Service. Estate and Gift Tax FAQs
The estate pays any estate tax before assets are distributed, so a large estate tax bill can shrink what you receive. It does not change the income tax treatment of your withdrawals. Some states also impose their own estate or inheritance taxes with much lower thresholds, so an estate that owes nothing federally can still owe something at the state level.
How to Report Distributions on Your Return
Even a fully tax-free distribution generates paperwork. The custodian sends you a Form 1099-R for any year you take money out. Inherited Roth IRA distributions carry distribution code 4, which signals a payment to a beneficiary after the owner’s death.7Internal Revenue Service. Instructions for Forms 1099-R and 5498
If the distribution is qualified because the five-year rule was met, the taxable amount on the 1099-R should read zero, and typically no further reporting is needed. If it isn’t qualified, you file Form 8606, Part III, which walks through the contribution-versus-earnings math so you report only the taxable portion.8Internal Revenue Service. 2025 Instructions for Form 8606 – Nondeductible IRAs Keep records of the original owner’s contribution history. The 1099-R doesn’t always split contributions and earnings for you.