Inherited IRA - how much RMD my beneficiaries must withdraw first year (i.e. the year I died) and subsequent 9 years?

Forum|Forum|4 years ago
January 23, 2022
33 replies
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I am planning ahead. Say I am age 75 and RMD is happening every year. Then I died suddenly in 2022. My beneficiaries are my daughter and her three minor children who equally inherited my traditional IRA and Roth IRA.

How much do they must withdraw/distribute for RMD first year (i.e. 2022) and the subsequent 9 years? Who determines the amount? How much is enough for the first year? For my grandkids, I believe it is more than 9 years they must withdraw/distribute all of IRA funds but I don't know how long of extension they have. If you can shed the light for all these, that would be so awesome.

Also do they need to create a separate account called "Inherited IRA" under their name from my original IRA account? The taxable RMD they must withdraw will put into some sort of investment account outside of their inherited IRA, correct?

Thank you,

Maureen

Best answer by fanfare

Under the new rules, there is no RMD until the end of the ten year period.

You can take out any amount or nothing.

at the end of ten years, you must take it all out.

If you inherit a huge IRA,

subject to the 10-year liquidation rule for newly inherited IRAs,
to spread the tax impact most evenly over the ten years,
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,

fanfareAnswer

Level 15

Under the new rules, there is no RMD until the end of the ten year period.

You can take out any amount or nothing.

at the end of ten years, you must take it all out.

If you inherit a huge IRA,

In other words, with five years to go, you want to take out one fifth of the IRA,

fanfare

Level 15

" ... if the owner died in 2020, the beneficiary would have to fully distribute the plan by December 31, 2030."

fanfare

Level 15

I corrected my post above by replacing it with text directly from IRS Pub 590-B for 2020.

fanfare

Level 15

"Also do they need to create a separate account called "Inherited IRA" "

All the designated beneficiaries need to come forward and verify their identity, at which time the custodian will retitle their share of the IRA as an Inherited IRA with him/her as the beneficiary.

mjc4maureenAuthor

Level 4

As to the custodian, if the beneficiary is the minor who will have the inherited account with her parents as her custodian in that inherited account. Does it sound right?

If I haven't taken out RMD for the year I die, my daughter must do so for me. That RMD will be my taxable income when she files my last tax return for me. Does it sound right too?

Thank you in advance for your knowledge and wisdom.

fanfare

Level 15

If the beneficiary is a minor a parent is also listed on the IRA and can act for the beneficiary.

As I recall, the parent will stay on the IRA until the child reaches 18 and takes action to remove the parent's authority.

Opus 17

Level 15

@mjc4maureen

With luck, I can wrap this up, referencing your original question and the additional information you have added, and leaving out the mistake I made.

For your traditional IRAs, the accounts will be transferred to your beneficiaries as "inherited IRAs". They can rollover the money to a different broker if they like, but it must remain an inherited IRA (this designation will be applied by the broker). They must withdraw the funds within 10 years, and pay regular income tax when they do so. They have no other withdrawal requirement or schedule to follow, even if you have passed your RMD starting date before you died.

If you did not take your RMD for that year from a traditional IRA before you died, the RMD must be calculated and distributed to your beneficiaries, who pay the income tax, before the remaining balance can be divided. This is one of the duties of your executor, and your broker will certainly help. The RMD does not go on your final tax return or on an estate tax return.

For your Roth IRAs, since you opened your Roth IRA in 2005, you have already fulfilled your 5 year holding period. Your beneficiaries will receive Roth IRA account also labeled as "inherited." Your beneficiaries must withdraw all the funds within 10 years, there is no other required schedule. All withdrawals by your heirs will be tax-free, regardless of the date of your death or any IRA to Roth conversions you have done recently. Roth IRAs have no RMD requirement, so there is no "final RMD" needed for the year of your death.

Once the beneficiaries withdraw the money (and pay tax, if it is withdrawn from a traditional IRA) they can do anything with the money that they want, it's all just money at that point. They can contribute to a new IRA (if they have compensation from working) or they can invest in a broker account, or pay college tuition, or anything else that can be done with money. The one thing they can't do is rollover or convert the inherited IRA into a regular IRA in their own name and keep the money for the rest of their lives. They must withdraw all funds within 10 years.