Inherited IRA

Hi @Pickles4 

Thank you so much for joining us today, we are so happy you are here!

Congratulations on retiring and I am so sorry to hear about your mom's passing.  

With your inherited Ira, here are you options.....

Non-spouse beneficiary options

In 2020 and later, options for a beneficiary who is not the spouse of the deceased account owner depend on whether they are an "eligible designated beneficiary." An eligible designated beneficiary is

• Spouse or minor child of the deceased account holder
• Disabled or chronically ill individual
• Individual who is not more than 10 years younger than the IRA owner or plan participant

An eligible designated beneficiary may

• Take distributions over the longer of their own life expectancy and the employee's remaining life expectancy, or
• Follow the 10-year rule (if the account owner died before that owner's required beginning date)

Designated beneficiary (not an eligible designated beneficiary)

• Follow the 10-year rule

Beneficiary that is not an individual

• Follow the rules described above as if the account owner died before 2020 (because the SECURE Act changes only apply to beneficiaries who are individuals)

Definitions

5-year rule: If a beneficiary is subject to the 5-year rule,

• They must empty account by the end of the 5th year following the year of the account holders' death
• 2020 does not count when determining the 5 years
• No withdrawals are required before the end of that 5th year

10-year rule: If a beneficiary is subject to the 10-year rule,

• Empty the entire account by the end of the 10th year following the year of the account owner's (or eligible designated beneficiary's) death
• Relief under Notice 2022-53 for beneficiaries subject to the 10-year rule
  • The IRS will not treat a beneficiary of an inherited account in a plan or IRA who was subject to the 10-year rule and who failed to take an RMD for 2021 and 2022 as having failed to take the correct RMD
  • https://www.irs.gov/retirement-plans/plan-participant-employee/retirement-topics-beneficiary#:~:text=Beneficiaries%20of%20retirement%20plan%20and,an%20IRA%20after%20they%20die. 

 

I hope this is helpful and let me know if you have any other questions.

 

Cheer's, 

Holly W

Because your mother died after her required beginning date for RMDs, the proposed regulations from the IRS require you to take RMDs each year based on your Single Life Expectancy in 2022, reduced by 1 each subsequent year.  However, because the IRS has not yet finalized the requirements, the IRS has waived the penalties for not having take the 2022 and 2023 beneficiary RMDs (as well as the 2021 beneficiary RMD for those inheriting from a decedent who died in 2020).  The entire account must be drained by the end of 2032.

 

If you mother did not complete her 2021 RMD, you are required to have completed her 2021 RMD.

My husband has an inherited traditional IRA from his mom who died in 2021. She was 89. He did not take any RMD in 2021 and 2022. Does he have to take RMD in 2023 or can he do it in 2024? 

@krisandclint , the regulations proposed by the IRS in 2022 require annual RMDs under the 10-year rule because the decedent died after their RBD, but due to the IRS anticipating that the regulations will not be finalized until 2024,  the penalty for failing to take a beneficiary RMD under the 10-year rule has been waived for 2021, 2022 and 2023.  Still, because the IRA will have to be fully drained by the end of 2031, it still might make sense to take a distribution in 2023 to spread the taxable income out over more years.

 

Your husband was also required to complete his mother's 2021 RMD if she did not complete it.  If she did not complete her 2021 RMD, your husband can do it now and file a 2021 Form 5329 requesting waiver of the excess accumulation penalty.