I inherited an IRA from my mother in 2020, who was 83 when she died. Can I make use of the "10-year rule", and wait to make withdrawals? Or do I need to make an RMD now?

[Opus 17]

@lennar0719 

The best thing to do is log off, grab some coffee, and wait for @dmertz to answer, he knows this stuff in his sleep.

The problem, as mentioned before, is that publication 590B has not been updated for this new regulation, so the only person who will know if the RMD for a non-eligible designated beneficiary following the 10 year rule is based on the owners life expectancy or the beneficiary's life expectancy is someone who has read and understands the proposed regulation.  I'm sure he has answered this before, but the search tools for this forum are not great, so the easiest thing to do is wait for him to answer.  

[fanfare]

Sorry if you are a beneficiary it it Table I not Table III.

@lennar0719 

[Opus 17]

@lennar0719 

I found the answer, free of charge.

If the owner dies before their beginning year, the designated beneficiary must take RMDs based on the designated beneficiary's life expectancy.

If the owner dies after their beginning year, the designated beneficiary takes their RMD based on their life expectancy or the owner's life expectancy, whichever is larger.

In addition, of course, the entire account must be withdrawn and closed by the end of the 10th year. 

https://frostbrowntodd.com/important-proposed-changes-in-ira-distribution-rules-for-10-year-payout-b...

With respect to the “10-year payout rule,” the 2022 proposed Regulations make one clarification and two significant additions that arguably go beyond the text of the SECURE Act’s changes to Code § 401(a)(9):

• The 10-year payout period ends on December 31 of the tenth calendar year following the year of the employee or account owner’s death [Prop. Reg. § 1.401(a)(9)-5(e)(2)].
• If the account owner or employee died on or after the required beginning date, the Designated Beneficiary must take an annual withdrawal distribution (RMD) during each year of the 10-year period, calculated by using the IRS table and by dividing the account value at the end of the previous year by the life expectancy of the Designated Beneficiary or the life expectancy of the deceased account owner or employee, whichever is the larger number [Prop. Reg. § 1.401(a)(9)-5(d)(1)(ii)].
• If the account owner or employee died before the required beginning date, the Designated Beneficiary must take an annual withdrawal distribution (RMD) during each year of the 10-year period, calculated in the same manner with the IRS table, but by using the Designated Beneficiary’s life expectancy as the divisor or denominator [Prop. Reg. § 1.401(a)(9)-5(d)(2)].

[fanfare]

Bullet No.3 is what made the Stretch IRA so valuable for young people.

Now the law is going to give you a balloon distribution in the tenth year if you take those RMDs.

[fanfare]

Pub 590B says:

as a beneficiary, once you have determined the first divisor (life expectancy),

"Reduce the life expectancy by 1 for each year after the year of death."

Do this regardless of which life expectancy is the longer one.

[Opus 17]

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@fanfare wrote:

Pub 590B says:

as a beneficiary, once you have determined the first divisor (life expectancy),

"Reduce the life expectancy by 1 for each year after the year of death."

Do this regardless of which life expectancy is the longer one.

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I'm not sure that will apply.  Remember that you are looking at either the official version of 590-B (which is for 2021) or the draft version for 2022 tax returns (which has not been officially published yet).  Neither version of pub 590-B includes the new proposed RMD regulations.  

The actual proposed regulations are here and I am not going to read them now to find out if the rules for non-eligible designated beneficiaries will apply the minus 1 rule.

https://www.federalregister.gov/documents/2022/02/24/2022-02522/required-minimum-distributions

I suggest you check back in November for updates on how to calculate your RMD for 2023.

Also, as @fanfare previously suggested, there may be good reasons to withdraw a more balanced amount, rather than taking just the RMD and a balloon at the end.  But that should be based on your own financial situation.  

[fanfare]

@Opus 17 

well you have a point but I doubt that is going to change.

That is the way it is done for inherited IRAs before 2020.

You only consult Table 1 once, so if the owner died in 2021 you already know the divisor for 2022 RMD is expectancy plus minus one.

if the owner failed to take a required RMD in year of death the divisor is expectancy.

[dmertz]

@lennar0719 , I assume that this was your mother's IRA and not an inherited IRA maintained for her as beneficiary of someone else's IRA.

The RMDs in years 1 through 9 are to be calculated using the factor from the Single Life Expectancy table for your age attained in 2021, reduced by 1 each subsequent year.  Any amount that remains in year 10 must be distributed by the end of year 10.  (As Opus 17 has said, the IRS waived the penalty for failing to take these annual RMDs in 2021 and 2022,)

[lennar0719]

Actually, it was my fathers IRA that my mother inherited, which I know opens up a new can of worms.  It's all very confusing.  The IRA now only shows my mothers name and myself.

[dmertz]

If your mother treated the IRA inherited from your father as her own, or she died before the date she would have had to begin taking distributions causing the inherited IRA to be treated as her own by operation of law, it was your mother's IRA, not an inherited IRA maintained for your mother as beneficiary.

[lennar0719]

Thank you, that is very helpful. When I asked Vanguard about that they just said they had no idea if that would be taken into consideration deciding on RMD.  My mother did treat it as her own and was taking RMD's every year including year she passed.  From what I am reading at this point I "assume" I would use my life expectancy as it was the longer of the two.

Thanks,

Nadine

[dmertz]

You would use your life expectancy regardless.  Still, you probably want to consider taking more than the RMD each year so that you don't get a spike in income in year 10.