Inherited IRA

[Marilyn227]

Ok got it...12/31/22 balance divided by 19.4.

I'll probably withdraw a little more than that.

Guess I have to tell Chase what I want to withdraw each year.

[NCperson]

@Marilyn227 - and it is not as simple as 1/9 per year to smooth out the remaining RMDS....remember you probaly have the money invested..... if it just cash, then it's not that big a deal comes year 9, but if you have it in stocks / ETFs, etc, a smooth 1/9 per year isn't probably not going to work comes the 10th year.  

one idea is to take the withdrawls to the top of your current income bracket..... takes some math and sometimes a financial planner to figure this out. 

[Marilyn227]

It's in mutual funds and the market will probably climb going forward I'm hoping!

I've been thinking about that.  Thank you for the suggestion.

I am a CPA and can do my own financial planning.  I will definitely take you suggestion!!

Marilyn

[fanfare]

All else being equal i.e. ignoring the considerations discussed above, 

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, and regardless of the Year-End Value, ( @NCperson  )
your divisor should be : 10,9,8 . . . 2, 1

OR,    11 - N where N is the number of years gone by. (Beneficiary RMDs start in the year after the year of owner's death).

If the owner died in 2020, the beneficiary would have to fully distribute the plan by December 31, 2030. which is the tenth distribution year.
the amount to distribute is 1 / 1 or 100%.

In the eighth year, you would take out one third of the IRA, there being three distributions to go.
If you are a young beneficiary, or even not so young, this rule would generate much larger RMD than the RMD based on Pub590B formulas.

At a very high age, the Pub590B formula will overtake this calculation and require a larger RMD.

[NCperson]

@Marilyn227 while @fanfare specifically states "regardless of the end of year balance",  that balance is what is critical  to considering how much to withdraw if the goals is SMOOTH withdrawals over 10 years - and you really can't ever get to 'smooth' because the rate of the return of the investmemt is not going to be smooth.

But let's assume a 6% growth of $100,000 with the goal of equal withdrawals each year, then the result looks something like the chart below: 

It would take a withdrawal of $13,500 each year to liquidate  $100,000 that was growing by 6% per year by the end of the 10th year.  The last column is the percent of the prior year balance that would need to be distributed each year. 

As everyone's tax situation is different, also consider where you are in you own specific tax bracket and if you are appraoching (or are already on Medicare) as Medicare premiums are subject to IRMAA (which is a 'stealth tax' - google it) as that all can play into the decision of how much to withdraw every year; IRMAA is a function of your AGI which is going to be impacted by these withdrawals   The current tax brackets will go back to the 2017 tax bracket structure after 2025 if Congress doesn't pass legislation to extend the current tax brackets (i.e. there is otherwise going to be a tax increase in 2026 without Congressional legislation)

This exercise isn't for the faint of heart! 

	End of year	growth	withdrawal	PCT
1	92,500	6,000	$ (13,500)	-14%
2	84,550	5,550	$ (13,500)	-15%
3	76,123	5,073	$ (13,500)	-16%
4	67,190	4,567	$ (13,500)	-18%
5	57,722	4,031	$ (13,500)	-20%
6	47,685	3,463	$ (13,500)	-23%
7	37,046	2,861	$ (13,500)	-28%
8	25,769	2,223	$ (13,500)	-36%
9	13,815	1,546	$ (13,500)	-52%
10	0	829	$ (14,644)	-100%

Great IRMAA webite explanation: 

https://thefinancebuff.com/medicare-irmaa-income-brackets.html

[Marilyn227]

@NCperson you are close.  My bene IRA is $60K.

I am going for medicare starting January 2024.  I received a very large one time bonus in 2022 and I expect

to lose my job this year.  This is a new subject but not sure how I should do the appeal.  I will pay an extremely

high IRMAA in 2024 unless I can manage an appeal.  I can't appeal based on large one time bonus?

[NCperson]

read this link: 

https://www.hhs.gov/about/agencies/omha/the-appeals-process/part-b-premium-appeals/index.html#:~:tex....

work reductions and work stoppages are two conditions that are considered 'life changing' events, so hopefully Social Security will eliminate all your 2022 and 2023 income from their calculations.  

This gets 'squirly', but it is Social Security administration (SSA)  that gets your income from the IRS and determines your Medicare premium, including IRMAA.  If you call Medicare, they are just going to say "Call SSA".  Trust me, I just went through all this in the last 6 months.   All the correspondance on what your premiums are come from SSA, but the bills asking you to pay for Medicare come from Medicare. 

I don't beleive you can appeal until you get the official letter from the SSA about your premiums, which won't be until after you apply for Medicare. 

Also, be careful, if you are contributing to an HSA, those contributions need to stop 6 months before you are first eligible for Medicare (which sould like could be July 1 for you).

[Opus 17]

---

@NCperson wrote:

Also, be careful, if you are contributing to an HSA, those contributions need to stop 6 months before you are first eligible for Medicare (which sould like could be July 1 for you).

---

I have to jump in and amend this one point.

I person become ineligible to contribute to an HSA when they enroll in Medicare.  It is true for this taxpayer (who says they are 67) that when they enroll in Medicare, their enrollment will be backdated by 6 months, meaning their disqualification to contribute to an HSA will also be backdated.

However, for other people reading this, it is not universally true that a person always becomes HSA ineligible 6 months before Medicare.  If you enroll in Medicare from 3 months before your 65th birthday to 6 months after your 65th birthday, your enrollment will be effective on the first day of the month containing your 65th birthday, and that's when you become ineligible to make HSA contributions.

[NCperson]

@Opus 17- well stated; thank you. 

[Marilyn227]

I am actually 69 now and plan on applying for medicare in January and social security in February, which is my 70th birthday month.  I'm maxing out my social security by waiting until I'm 70.  I'm not contributing to an HSA now so no issue with me there.

Just to clarify about the Medicare Part B IRMAA appeal process. If my work stoppage occurs this year, I can use that life changing event to eliminate all my 2022 and 2023 income?

[NCperson]

Yes…. just wait for the letter detailing the IRMAA charges and it will give you instructions about challenging the charges (the letter comes way late in the process… may not arrive until you are already covered by Medicare) 

[Marilyn227]

Applies to 2021 income as well?

I can use the same loss of job appeal for 3 years until 2026 when the lookback is 2024?

[NCperson]

your 2024 IRMAA charge is solely based on your 2022 AGI, so your argument  is going to be to eliminate your 2022 income related to you job before using the rest of the AGI to determine your IRMAA assessment. same thing for 2025 IRMAA (based on 2023 income) 

2021 income is only used to determine 2023 IRMAA charges which is a non-issue for you since you stated you won’t move to Medicare until Jan 2024. 

there is no 3 year look back 

[Marilyn227]

You're right!  I don't have to deal with 2021.

People were telling me that I can't use the loss of job as an appeal for both years but you're saying I can.

Thank you sooo much for your help!!

[briggs10james]

I notice that Marilyn did not mention if the inherited IRA is Traditional or Roth.  Does your answer

"You are also required to take RMDs during the 10 year period" still stand if she is referring to a Roth?