Inheriting spouse's IRA - I'm under 59 1/2 years old, accounts over 5 years

[dmertz]

With respect to assuming ownership or maintaining as inherited, each account is treated separately.

[Opus 17]

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@dmertz wrote:

With respect to assuming ownership or maintaining as inherited, each account is treated separately.

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Can you clarify this?  I'm pretty sure that when my mother died, her (tradiational) IRA was rolled over/transferred into my father's IRA so he has one account, not two.  Am I misunderstanding your comment?

[tealover753]

Thank you @dmertz,

So, I went to the bank to set up an Inherited IRA i(nstead of Assumed IRA), 

and explained to the manager that 'I need to do the last RMD for my deceased husband for this year'.

HOWEVER, the bank's IRA department kept saying that his RMD is now 'suspended' and

there WON'T be distribution requirement....  

In other words, they won't do his RMD for this year.  *They asked me what day he passed away which was after 4/1/23 and etc...

I wanted to process my husband's last (TRA)RMD for 2023 by 2/3 portion from the local bank and 1/3 from the other institution, but the local bank doesn't seem to agree.

Then my only option would be to process 100% RMD with the other institution...

With the other financial institution we've had IRA  , the rep told me that I have to do RMD one last time for my husband, which I confirmed also on this thread too.

I don't know why the difference?

[dmertz]

"HOWEVER, the bank's IRA department kept saying that his RMD is now 'suspended' and

there WON'T be distribution requirement.... "

Apparently they think that he reached age 72 in 2023, not in 2022, they think he died in 2022 (in which case you would have a beneficiary RMD for 2023) or they are simply confused.  (Unfortunately, it's quite common for bank personnel to be inadequately trained with regard to inherited IRAs.)  Because your husband reached age 72 in 2022 and died in 2023, you are indeed required to complete your husband's 2023 RMD.  "Suspension" of this RMD is not permitted.

[Edit:  After reading Opus 17's post below, I'm wondering if the bank might just be saying that they cannot issue an RMD paid to your husband and that any standing instructions to do so have been suspended.  However, you must still complete his 2023 RMD with a distribution paid to you.]

They cannot refuse your request for a distribution.  You are permitted to take a distribution whether they think it's an RMD or not.  It's your responsibility, not the IRA custodian's responsibility, to satisfy RMD requirements.

Sine you inherited both accounts from the same decedent, you can take the combined RMD from these inherited IRAs in any combination.

[Opus 17]

@tealover753 

Let's clarify that your husband can't take an RMD, nor can the bank pay an RMD in your husband's name.

What happens is that you withdraw money in your name, and you get the 1099-R and you report the income on your tax return.  The difference is that for 2023, the minimum amount you must withdraw is the amount your husband would have been required to withdraw as his RMD.  Calculated using his age, life expectancy, account balance and so on.  (You can always withdraw more, of course, if you want to spend it, give it away, or invest it some place else.)

Then starting in 2024, your need to withdraw an RMD (or not) will depend on your age, life expectancy, and other rules that apply to you.  

To try and simplify even further, for 2023, you withdraw in your name, but the amount is calculated based on what your husband's RMD would have been.  For 2024 and the future, you withdraw amounts based on your own RMD calculations.  

Also, to remind you if things got confusing, an RMD is the required minimum amount you must withdraw, because you can't leave retirement funds untouched forever.  You can always withdraw more if you want.  The RMD is an amount, not a specific transaction.  Suppose the RMD is $5000.  That can be satisfied by a single withdrawal of $5000 on December 29, but it would also be satisfied if you withdrew $500 per month over the whole year for living expenses (because $500 x 12 is more than the $5000 minimum amount).  

So for 2023, you need to withdraw an amount equal or more than your husband's RMD would have been.  The withdrawal is in your name and goes on your taxes.  The bank doesn't need to know that this is an RMD, they don't care or need to know why you are withdrawing money.  A better bank or broker will help you calculate the RMD, but if you can calculate it on your own, all you need to do is withdraw that amount (or more).  

[tealover753]

Thank you @dmertz.  @Opus 17  and everyone,

Yes, so I am tired of dealing with my bank, and I'm going to do my husband's Traditional IRA RMD from the other financial institution.

Now, regarding the my RMD for both TRA and ROTH Inherited IRAs (not Assumed or rollover), I found these below in IRS website.

Death of the account holder occurred in 2020 or later

Spousal beneficiary options

If the account holder's death occurred prior to the required beginning date, the spouse beneficiary may:

• Keep as an inherited account
  • Delay beginning distributions until the employee would have turned 72
  • Take distributions based on their own life expectancy
  • Follow the 10-year rule
• Roll over the account into their own IRA

If the account holder's death occurred after the required beginning date, the spouse beneficiary may:

• Keep as an inherited account
  • Take distributions based on their own life expectancy, or
• Rollover the account into their own IRA

Inherited Roth IRAs

Generally, inherited Roth IRA accounts are subject to the same RMD requirements as inherited traditional IRA accounts. Withdrawals of contributions from an inherited Roth are tax free. Most withdrawals of earnings from an inherited Roth IRA account are also tax-free. However, withdrawals of earnings may be subject to income tax if the Roth account is less than 5-years old at the time of the withdrawal.

So, my understanding is...

I am not subject to the 10-year window RMD requirement, *since my husband's death occurred this year

I am subject to the same RMD requirement for inherited Roth IRA as Tra IRA, and earnings portions are also not subj to tax because the Roth accounts are more than 5 years old

am I correct?

I was told by a rep from the other institution that I would need to complete the RMD within 10 years...

In any case, whether I am subject to 10-year rule or not, I only have a few more years until 59 1/2 yo.

But if I am NOT, then can I still leave somewhat amountand keep RMD over 10 years period in the inherited IRA accounts ? *Just curious...

Thank you

[Opus 17]

@tealover753 

I will try to answer in general.

You have two main options.

A. Keep the account as an inherited IRA.

B. Assume ownership in your own name, by taking over the account in your own name or rolling over the funds into your own IRA accounts. 

If you keep the account as an inherited IRA, you do not have to close the account in 10 years.  But you must begin taking RMDs NOW based on your life expectancy.  (You can always withdraw more if you need to, but you must withdraw at least the minimum amount.) Your withdrawals are not subject to the 10% penalty for early withdrawal even if you are under age 59-1/2, but withdrawals from the traditional IRA are taxable.

If you rollover the account into your own IRA, then you are subject to the ordinary rules that apply to your own IRAs, including the 10% penalty for early withdrawal, but also RMDs not being required until you reach age 75 (which is what the beginning year will be by the time you reach that age).   Also note that your own Roth IRA never has an RMD, but an inherited Roth IRA does.

Also remember that you must first take your husband's RMD for 2023.  Then, if you decide to keep the IRA as an inherited IRA, you must start taking RMDs based on your own life expectancy starting in 2024.  That also means that you must decide whether to leave the IRA as an inherited IRA or to assume ownership in your own name by the end of 2024.  If you fail to take the RMD for 2024, then by default you have chosen to assume ownership in your own name.  

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So what you do depends on your need for the money and your financial philosophy.  If you don't need the money for living costs, and you want to keep your retirement assets to grow to their maximum potential, then you want to assume ownership in your own name.  That means you will pay a penalty if you withdraw before age 59-1/2, but it also means you won't be forced to withdraw money until age 75.  On the other hand, if you need the money now, you may want to keep the funds as an inherited IRA so you don't pay a penalty on your current withdrawals, but the down side is that you must keep making withdrawals for the rest of your life, even if you wanted to leave it alone, you can't.

You also have the option of rolling over the traditional account in your name and keeping the Roth as an inherited account, or vice versa.  Remember that a Roth IRA in your own name never has an RMD, even after age 75, but an inherited Roth IRA does have an RMD.

Really, the key question is, do you need to spend some of that money before age 59-1/2?

[dmertz]

You are subject to annual beneficiary RMDs from the IRAs maintained as inherited traditional IRAs beginning with 2024.  You are required to complete his 2023 RMD in 2023 which you have indicated that you will do from the other inherited traditional IRA.  In the year that you choose to treat the inherited traditional IRA as your own, you are treated as having owned the IRA all year and you will not be subject to beneficiary RMDs for that year and beyond.

A spouse beneficiary of a Roth IRA normally chooses to treat an inherited Roth IRA as their own so that there will not be any RMDs but they will still have access to contribution basis free of tax and penalty.  However, in the rare case where the spouse beneficiary might want to be able to distribute more than contribution basis from the Roth IRA before age 59½, the spouse beneficiary can maintain the Roth IRA as an inherited Roth IRA to avoid tax and early-distribution penalty on earnings that are distributed.  If you maintain the account as an inherited Roth IRA you normally would be subject to annual RMDs from the inherited Roth IRA, but you have the option to opt into the 10-year rule and avoid RMDs in years 1 through 9, with the plan being to treat the inherited Roth IRA as your own before year 10.

If for any year you fail to complete a required distribution as beneficiary, the IRA you defaults to an owned IRA and ceases to be an inherited IRA.

[tealover753]

Thank you @Opus 17 and @dmertz 

Completed my husband's last RMD the other day.

Will start my spousal beneficiary RMD for the Inherited IRA for both Inherited TRA&ROTH IRA from 2024 and 

if I keep the IRAs as Inherited as a beneficiary, then empty the inherited accounts by the 10th year(2033),

unless  I decide to roll over them(or some/one of them) to Assumed Ira along the way.

Thank you so much for your help!

[Opus 17]

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@tealover753 wrote:

if I keep the IRAs as Inherited as a beneficiary, then empty the inherited accounts by the 10th year(2033),

unless  I decide to roll over them(or some/one of them) to Assumed Ira along the way.

Not quite.  If I understand correctly, because you are a qualified beneficiary (a spouse), if you keep the IRA as an inherited IRA, you may withdraw over your expected lifetime.  You are not required to follow the 10 year rule unless you choose to for your own reasons.

Also, I don't know how long you have to assume ownership in your own name (by assumption or rollover).  In publication 590-b, I see a rule that if you make contributions to the inherited IRA, that action changes ownership of the IRA from a beneficiary account to your own account.  And if you fail to take an RMD as beneficiary (in 2024 or later), then the IRA becomes your own IRA and you no longer follow the beneficiary rules.  But I don't know if there are any other time limits on assuming ownership.  

[fanfare]

You don't have to take RMDs on a Roth IRA.

Your best policy is to try to make the Roth IRA grow as much as possible.,

living off the Traditional IRAs.

@tealover753 

[fanfare]

[REMOVED]

[Opus 17]

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@fanfare wrote:

You don't have to take RMDs on a Roth IRA.

Your best policy is to try to make the Roth IRA grow as much as possible.,

living off the Traditional IRAs.

@tealover753 

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There IS an RMD required for beneficiary Roth IRAs.  Under the rule for qualified beneficiaries (i.e. a spouse) the RMD is based on the spouse's life expectancy, but the spouse beneficiary does not have to close the account within 10 years unless they opt into the 10 year rule (otherwise, they must withdraw over their entire life).

For this reason, and as @dmertz  suggested above, spouse beneficiaries usually assume ownership of the inherited Roth IRA.  Then it becomes their own Roth IRA and there are no RMDs.  

(However, if the Roth IRA is treated as an inherited IRA, the entire amount can be withdrawn without tax or penalty as long as the account is at least 5 years old.  If the beneficiary assumes ownership, then they assume the contribution basis, and only the basis may be withdrawn tax-free until the new owner reaches age 59-1/2.)

For this reason, and depending on the beneficiary's financial need to make withdrawals before age 59-1/2, it might be useful to assume ownership of the Roth IRA but keep the traditional IRA as an inherited IRA.  However (again), because @tealover753  seems to be having trouble following our answers, and because these decisions can affect the rest of her life, it may be time to find a qualified financial planner to talk to.   

[fanfare]

"spouse beneficiary does not have to close the account within 10 years unless they opt into the 10 year rule (otherwise, they must withdraw over their entire life)."

How do you opt into the 10-year rule ?

Thanks.

@Opus 17 

[Opus 17]

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@fanfare wrote:

"spouse beneficiary does not have to close the account within 10 years unless they opt into the 10 year rule (otherwise, they must withdraw over their entire life)."

How do you opt into the 10-year rule ?

Thanks.

@Opus 17 

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Not sure.  @dmertz  mentioned it.  It may need clarification.   As dmertz framed it, it only applies to inherited Roth IRAs.  He says that if you opt into the 10 year rule, RMDs are not required in year 1-9, as long as you close the account or assume ownership by year 10.  I'm not sure how that agrees with the rule that if you miss an RMD (as a qualified beneficiary), you are deemed to have assumed ownership of the account.

(With regards to an inherited traditional IRA, you must take RMDs no matter whether you are under the 10 year rule or the lifetime rule for qualified (includes spouse) beneficiaries.  So there's no difference and no way to "opt in" to the 10 year rule, you just take RMDs (or more) until you decide to spend out the account.)