I have inherited via being a trust beneficiary an IRA. The RMD for 2021 was taken before the death
of the trustor. Also do I need to report to the IRS that I have inherited this IRA? I am 60.
@taxamedmed wrote:
I have inherited via being a trust beneficiary an IRA. The RMD for 2021 was taken before the death
of the trustor. Also do I need to report to the IRS that I have inherited this IRA? I am 60.
A distribution taken before death is reported on the IRA owners final tax return. You must take the 2022 RMD. However, most non spouse inherited IRAs no longer have RMDs but the entire amount must be distributed withing 10 years.
See IRS Pub 590B https://www.irs.gov/publications/p590b#en_US_2020_publink100035553
10-year rule.
The 10-year rule requires the IRA beneficiaries who are not taking life expectancy payments to withdraw the entire balance of the IRA by December 31 of the year containing the 10th anniversary of the owner’s death. For example, if the owner died in 2020, the beneficiary would have to fully distribute the plan by December 31, 2030. The beneficiary is allowed, but not required, to take distributions prior to that date.
The 10-year rule applies if (1) the beneficiary is an eligible designated beneficiary who elects the 10-year rule, if the owner died before reaching his or her required beginning date; or (2) the beneficiary is a designated beneficiary who is not an eligible designated beneficiary, regardless of whether the owner died before reaching his or her required beginning date.
For a beneficiary receiving life expectancy payments who is either an eligible designated beneficiary or a minor child, the 10-year rule also applies to the remaining amounts in the IRA upon the death of the eligible designated beneficiary or upon the minor child beneficiary reaching the age of majority, but in either of those cases, the 10-year period ends on the 10th anniversary of the beneficiary's death or the child's attainment of majority.
There is still much confusion about this new rule and when it applies.
https://www.manning-napier.com/insights/blogs/financial-planning/secure-act-10-year-rule
Post edited to add information.
When you are subject to the 10-year liquidation rule for newly inherited IRAs,
to spread the tax impact most evenly,
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,
OTHERWISE,
Take any amounts you wish at any time, that is your choice,
OR
take it all in a lump sum at the end of ten years.