How many years do I have to deplete the Inherited IRA account if my parent died before 2019? Is it 5 years? What if more than 5 years have elapsed?

[MarilynG1]

Per Champ @Opus 17:

"If you inherited an IRA before the rules changed in 2019, you follow different rules.  Assuming you inherited this IRA from someone who was not your spouse, you had the following options. 

1. Withdraw the money immediately.

2. Withdraw the money within 5 years and close the account.

3. Withdraw the money over your expected life time by making required minimum distributions (RMDs) which is a dollar amount you must withdraw based on the size of the account and your remaining life expectancy.  For example, if you were age 50 in 2021, your remaining life expectancy is 34.2 years, and you must withdraw 1/34.2, or 2.92%, of your IRA balance in 2021.  You can withdraw more than the required minimum, but you will pay a penalty if you withdraw less than the required minimum. 

Since it's past 5 years, you made the choice to handle this as an inherited IRA over the life expectancy rule, whether you knew about it or not.  

If you did not take any distribution, the penalty is 50% of what you should have taken.  TurboTax will calculate this for you.  You can try and waive the penalty amount by taking your distribution as soon as possible, then including a form 5329 for the penalty and a letter of explanation requesting a waiver.  

If you withdrew more than your minimum for 2021, you don't have to do anything special, just report the 1099-R in Turbotax as usual. 

You can calculate your required minimum using Table 1 in appendix B of IRS publication 590-B."

[bhutter]

Ok, thanks for that info.  We have been taking InheritedRMD's every year.  I didn't know about the remaining life expectancy rule.  We have been taking out 10% each year and paying the tax on that.  

[jtax]

Required minimum distributions (RMDs) are very complicated and depend on some very detailed facts. It would be a  very good idea for you to get professional advice from a CPA, enrolled agent, or tax attorney so they can apply the law to your specific facts and can ask you more questions/review your documentation.

Here is some information so that you can have an informed discussion with your advisors.

Details matter a lot. For example, did your parent name you with the IRA company as a "designated beneficiary." (DB) Or did they name their estate (or not name anyone such that their estate was the beneficiary) and you inherited thru the estate?  

Also whether your parent was old enough to have already been taking RMDs matters in some cases. 

For pre-2020 deaths:

non-individuals (including estates) generally need to withdrawal all funds by 5 years.

individuals get to use their own life expectancy to "stretch" the withdrawals over time. Your IRA company can calculate this for you. (Or the last link below has a link to a calculator.) Or use the 5 year rule if they prefer. (But it is generally, though not always, better to keep money in tax-deferred accounts as long as possible.)

You must take your first RMD (if not using the 5 yr rule) by Dec 31 of the year following the owner's death. There are significant penalties for not taking an RMD (50% of the amount not withdrawn.) Each year the amount you need to take is recomputed. It is a % of the value of the account as of Dec 31 of the prior year. The % increases year by year as you get older.

Note that the pandemic relief CARES Act waived RMDs for 2020. So your first RMD would probably have been in 2021. 

The 5 year rule deadline is Dec 31 of the 5yr year following the year of the IRA owner's death. So if your parent died in 2019, you would have until Dec 31 2024.

I would suggest reading the links below. Then 1) if you haven't taken RMDs figure out your RMDs for the year after your parents death through 2023. See how bad the 50% penalties would be. 2) if you are within 5 years decide whether to take it all out to avoid the 50% penalties. 3) if beyond the 5 years, the 50% smaller life expectancy penalties are probably better than taking all out late and paying a penalty on the whole thing.

A lot also depends upon the size of the account. If it's small it may not be a big deal. If large more is at state.

For more info see these links -- look for "before 2020"

https://www.irs.gov/retirement-plans/plan-participant-employee/retirement-topics-beneficiary

this link has a calculator link

https://investor.vanguard.com/inheriting-accounts/rmd-rules-for-inherited-iras