Inherited IRA RMD

[Howward]

Background: My mother died in December 2021 at the age of 96 with an IRA that named my sister and me as beneficiaries. Half of her IRA was distributed to an inherited IRA for me in early 2022. I am older than 72. (My mother withdrew 2021's RMD prior to her death, so that's not at issue.)

Question: Am I required to make an RMD in 2022? If so, how much? Per IRS Pub 590-B, it looks as if I can choose to take RMDs on the basis of (a) my life expectancy, (b) the 5-year rule, or (c) the 10-year rule. Whichever I choose, the IRA must be completely withdrawn by 12/31/2031. Is this interpretation correct?
In addition, I'm uncertain on what amount the RMD should be calculated - my inherited IRA's opening balance or half of the balance on 12/31/2021, prior to its distribution to my inherited IRA?

[tagteam]

See https://www.irs.gov/pub/irs-drop/n-22-53.pdf (Page 7)

[fanfare]

Since you have the longer life expectancy than the original owner, your mother, the RMD divisor is obtained based on your age on your birthday in 2022.

I think you need to use the 12/31/2021 value divided by two, even if the account lost value by the time you took possession.

@Howward 

[fanfare]

when you are 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 four years gone by, you want to take out one sixth of the IRA,
If you are a young beneficiary  or even a 72 year old beneficiary, this rule would generate much larger RMD than the RMD based on Pub590B formulas.

 The tax impact will be significant for a huge IRA.

@Howward 

[tagteam]

---

@fanfare wrote:

I think you need to use the 12/31/2021 value divided by two, even if the account lost value by the time you took possession.

---

I think you should read the IRS Notice which states that an RMD is not required to taken until the 2023 tax year.

[dmertz · Accepted solution]

Under the proposed regulations you are required to take annual distributions beginning with 2022 based on your life expectancy from the Single Lifetime table based on your age attained in 2022, reduced by 1 each subsequent year, and fully drain the IRA by the end of 2031.   Your sister is required to do the same using her age.

Notice 2022-53 waives the penalty for not taking the 2022 beneficiary RMD.  However, it does not actually waive the requirement to take the RMD for 2022, although eliminating the penalty means that there is no consequence to not taking the distribution (other than not reducing the balance in the inherited IRA).  As others have said, though, to avoid a large bump in taxable income in any one year it might be best to take roughly equal distributions over the 10-year period, beginning with 2022, unless you anticipate your other taxable income being less in later years of the 10-year period.

[Howward]

@dmertz 

Thank you for your response to my question. 

To make sure I understand it completely, I'm required to take a distribution beginning this year based on Table I of IRS Pub 590-B. For my age that works out to just over 6% of the 12/31/2021 balance.

Alternatively, I can choose to use the 10-year rule, which just requires the distributions to be complete 10 years after my mother's death (preferably withdrawn in roughly equal amounts each year to avoid a large taxable income bump in 2031).

Is this right - it's my choice?

[dmertz · Accepted solution]

It's not either/or.  Read my first paragraph again.  Under the proposed regulations (which are not yet final), you are required to do both because your mother died after her required beginning date for RMDs.