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badger6
Returning Member

Inherited IRA distribution question.

My father passed away in September of 2020. All of his accounts were TOD and split between me and my 2 siblings. One of the accounts was an IRA. When he died, his IRA account was converted into 3 separate IRA-BDA accounts. 


I've talked to Fidelity twice and they have told me that we're subject to the 10 year rule, so I thought this issue was settled long ago. My brother said they told him that we have to take out a required minimum distribution of 10% every year or face a penalty.

 

Who's correct here? I'm 49 and my brothers are 55 and 60.  So I guess my question is what determines if we are required to take RMDs or the 10 year rule applies?

6 Replies
Bsch4477
Level 15

Inherited IRA distribution question.

If you take 10% a year according to the 10 year rule you will have taken it all in 10 years. If you consider the 10% yearly withdrawal a RMD and take it for 10 years you will have taken it all in 10 years also. 

badger6
Returning Member

Inherited IRA distribution question.

Yes, I understand the math. However, the 10 year rule doesn't require yearly RMDs. You can take it out as you see fit, just as long as the account is liquidated at the end of the 10 year period. I'm trying to figure out if I'm required to take RMDs every year. 

Critter-3
Level 15

Inherited IRA distribution question.

The 10 year rule simply states the entire IRA must be distributed in 10 years  ... how you do it is totally up to you.  There are no RMDs unless you are 72 or older.  

Bsch4477
Level 15

Inherited IRA distribution question.

For an inherited IRA received from a decedent who passed away after December 31, 2019:

Generally, a designated beneficiary is required to liquidate the account by the end of the 10th year following the year of death of the IRA owner (this is known as the 10-year rule). During the 10-year period, the beneficiary may take distributions of any amount at any frequency.

fanfare
Level 15

Inherited IRA distribution question.

Unfortunately, the custodian rep can give you incorrect information, and in this case, they did.

 

your best bet is to make the IRA grow as long as possible.

--

OTHERWISE,

when you are subject to the 10-year liquidation rule for newly inherited IRAs,
to spread the tax impact most evenly, (and, satisfy the requirement to liquidate all within the specified time)
your divisor should be :   10 - N where N is the number of annual distributions you already took.

In other words, with five years to go, you want to take out one fifth of the IRA  (not 10% of the IRA).

fanfare
Level 15

Inherited IRA distribution question.

"There are no RMDs unless you are 72 or older. "

That rule is only for your own IRA, not for an inherited IRA.

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