Hopefully do not need answers fast.
I have a Roth IRA that I prefer to leave to each heir as a start on their retirement plan should I die before retirement.
Can I split up my Roth to multiple heirs?
If so, how would the holdings be split?
Can I specify that they cannot cash it out until retirement?
Would a trust somehow make it easier or better?
Typically a Roth can be set up to go to different beneficiaries.
30% to Daughter A
30% to Daughter B
30% to Son A
10% to Cousin Itt
401Ks work the same way.
I think it would have to be in a trust to have restrictions that they cannot cash it out until retirement. I’m not sure you’d want to have that limitation, anyway. That’s a long time to have the money locked up. And you’d have to have all the trust maintenance overhead for all that time.
If it’s just a normal transfer, an inherited IRA has minimum annual withdrawal requirements. They will be forced to take a certain amount out every year. They will also be able to take out everything all at once if they like. You won’t be able to specify any restrictions if they just inherit the IRA.
As mentioned, set up beneficiaries to do the transfer. It will greatly simplify your probate since the estate won’t have to deal with the transfer of this asset.
There have been recent changes to the laws on required withdrawals from inherited IRAs. Which is the situation you / they will be in after you specify beneficiaries on the account with the brokerage or whoever operates your account.
Under the new (since 2019) rules, unless the beneficiary(ies) are your spouse, they must empty the account completely within 10 years of your death. For non-spousal beneficiaries of a Roth, 100% of withdrawals are taxable as ordinary income. Exactly the opposite of the situation with a Roth for the original account holder, who pays zero tax ever on any withdrawals. For a substantial account that might be quite a tax wallop.
There are ways to make a trust the beneficiary of the IRA, which would be the only mechanism to put restrictions on how the beneficiaries can withdraw or use the money. That’s also the only way to (sort-of) evade the must-deplete-in-10-years rule. But that is serious advanced estate planning and will require an attorney who practices in that specialty.
My late first wife was an attorney and estates specialist. The danger with all this stuff is the first time your arrangements get tested is after it’s far too late to change anything if mistakes were made. It can be monstrously expensive and slow to unscramble a badly-done DIY egg, and often the best possible resolution between tax law, probate law, and practicality is still awful.
Get it right or bequeath a mountain of headache to your heirs to go with their heartache over your loss.
When you die and go to heaven, you can do anything!
The Secure Act was passed in 2019, and it set new rules for how retirement accounts are handled. This was updated with The Secure Act 2.0, passed in Dec 2022.
It’s worth reading up on these Acts and some of the commentary and analysis by people in the industry. That shouldn’t take more than a week or two and you’ll likely still be confused, but it will be an informed confusion. I have a small inherited Traditional IRA, and I have yet to take an RMD because the IRS is still trying figure out how to handle these new requirements. But they will get their share in the end, of that I am certain.
While I agree that setting up the next generations with retirement funds is a fine goal, this is not a great way to do it because of the requirement of withdrawing the funds in 10 years (for non-designated beneficiaries). On the other hand, it may not be a great way, but it is the way it will probably happen. Probably the best thing you can do is to educate your beneficiaries of the importance of planning for retirement, how to do it, and perhaps providing some funds to encourage that they start their own retirement savings. If you do this and they are financially savvy when you do pass, they will figure out how to use the funds to their best use. If they are financially ignorant when you pass, then your best planning is for nothing.
And different accounts can have different beneficiaries and distributions. My brother’s IRAs had a bewildering combination of percentages and beneficiaries, He was unmarried with no kids, though some went to his ex-wife.
That seems unfair somehow.
Why wouldn’t fall under the $12,000,000 estate tax exemption?
The point is that IRAs are designed to NOT be a way to create intergenerational wealth; they are for your retirement use, and your retirement use only.
A) Because it’s not part of the estate.
B) Because Congress said so.
More seriously for both of you, inherited IRAs were never intended to be a thing. Then they got big, as in too big to spend for some people. So them being inherited became a problem. And despite the fact they were originally aimed as one of the few tax dodges for Joe Ordinary, the very wealthy were abusing the shit out of them with sneaky valuations they controlled.
During the horse trading that was the 2019 Secure act, making IRAs that do get inherited a much less-good deal for the lucky heirs was a big goal. That paid for other aspects of that same legislation, notably retirees being able to delay RMDs a few extra years.
As with all things in tax, they start with a certain internal and coherent logic that then becomes obscured over time by changes to offset later abuses or simply as legislative grease to buy votes from one constituency or another. Whether the votes bought are the public’s, or their representatives’.
Could you provide a cite on that? I’m looking at the IRS’ website right now, and it specifically says:
Inherited Roth IRAs
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.
Wow. You are absolutely right and I am absolutely wrong. Thank you for catching that.
There are some edge-case provisions where the income portion (but not the contribution portion) of the distributions would be taxed. But those are pretty unusual circumstances that would apply to fairly few people of normal longevity.
Upon further research, I think what I was thinking of is when a person who inherits a Roth IRA then dies themselves before they’ve drained the inherited IRA and the Roth IRA then passes to that person’s beneficiary. That second-level beneficiary = 3rd account owner now ends up with a fully taxable account.
That does it; I’m going to have to re-read my cites before I run from memory again.
In a better world you could give 30% to each of them,
I can’t find anything on that one! 
Seems like an odd solution. I’d think it would cash out to the initial heir’s estate (tax free), and then pass to the 3rd generation within the $12m estate tax exemption.