TWICE Inherited IRA

[shspence]

I am 60 in December 2023 and the recipient of a TWICE Inherited IRA worth approximately $13,000. It was first owned by my grandmother who died in 2011. It then passed to my mother who died in 2015. I found out about it several years, about 5, after she passed. At that time, I converted it from their names into mine but of course, it still remains a TWICE inherited IRA. My current annual income, for the last about 8 years, is about $13,000. My questions are the following.

1. When should the required minimum distribution (RMD) start? None has been taken. A tax accountant told me several years ago, some combination of (I don't remember exactly which/what) IRA wasn't large enough, I didn't make enough annually &/or I wasn't old enough to be required to. (??!!)

• 10 years after the first owner's (grandmother's) death (2011+10=2021?) or
• 10 years after the second owner's (my mother's) death (2015+10=2025?)

2. If I haven't taken a distribution & was required to do so starting 2021, what does that mean for 2023 & future income & tax filings.

3. To complicate things even more, I filed bankruptcy in mid-February 2023. How does that affect the IRA, the RMD, & anything else I may have forgotten or not thought about. 

[Katherine S 63]

If your income is just $13000, and the IRA that you inherited is just $13000, you might want to take the full amount out out now.  If you are single, your taxable income would be $26000-$13850=$12150.  Your tax would be quite low then.  If you are not single, here are the standard deductions for other filing status:

Filing status	2023 standard deduction
Single	$13,850.
Married, filing separately	$13,850.
Married, filing jointly; qualified widow/er	$27,700.
Head of household	$20,800.

Generally speaking, only the distributions from an inherited traditional IRA are taxable, just as they are for non-inherited traditional IRAs. Distributions from an inherited Roth aren't taxable unless the Roth was established within the past five years.

Inherited 401(k) plans are (or eventually will be) taxable, but the amount of tax depends on the 401(k) plan rules. For example, many 401(k) plans require a lump-sum distribution upon the death of the account holder. The surviving spouse can roll the 401(k) into an IRA, but if the beneficiary isn't a spouse, they might be forced to take a lump-sum payment and the tax bill that goes along with it.

When it comes to inherited IRAs and other retirement plans, the rules can get pretty complicated, but we're here to help. When you indicate in TurboTax that your IRA or plan was inherited, we'll ask a series of questions to determine how much, if any, is taxable on this year's return.

As far as it being inherited twice, I don't think you have to be concerned with that.  Only have to be concerned with your inherited portion.  

As far as bankruptcy, I would discuss this with your attorney.  

Here is a great article on this subject:  https://ttlc.intuit.com/turbotax-support/en-us/help-article/retirement-income/inherited-ira-retireme...

You can click the link or copy and paste it into a browser.

Hope this helps,

Katie S.

[shspence]

Katherine

Thanks a lot for the answer, it clears a lot of questions. When will the Inherited 401(k) plans become taxable? 

[Cate9]

As stated in the previous reply, the specific 401k rules need to be reviewed before you can truly know how and what will be taxed.  But the simple answer is that you will not be taxed on the 401k until you start making withdrawals.  At that time, it is important to understand the parameters associated with that 401k plan in order to know how you will be taxed.  It may be helpful for you to sit down with a local tax accountant or CPA with a copy of the documentation from the 401k to have all of your questions addressed.   I hope this helps. 

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[dmertz]

You have a lot of late RMDs to complete.

Your mother was required to take beneficiary RMDs beginning in 2012.  You are required to have continued your mother's RMD schedule upon inheriting the IRA in 2015.  The 10-year rule does not apply because your mother's death occurred before 2020 when the new rules took effect.

[JoeD_CPA_CFP]

Hello shspence,

I wanted to point out some issues I saw in your initial post:

• When your mother inherited your grandmothers IRA, your mother should have began taking RMDs over her single life expectancy, starting in 2012.
• When you inherited it from your mother, you should have continued taking RMDs over the same single life expectancy schedule.
• You said you converted the inherited IRA to your name, I assume you mean that it is still considered a beneficiary IRA and you did not rollover to your individual IRA. A non-spouse beneficiary may not rollover an inherited IRA. If a non-spouse beneficiary somehow does this, it would create a 6% excise tax for every year it remained in your traditional IRA.
• Excise tax would be owed since 2012. Form 5329 can be filed to request waivers, if the deadlines were missed due to reasonable error.

Questions for more information if you actually did a rollover of the inherited IRA to a traditional IRA:

1. When did you rollover the inherited IRA to to your IRA?
2. Did you make traditional and/or Roth IRA contributions for every year, starting with the year of the rollover?
3. Did you receive compensation (such as salary or self-employed income) every year since the rollover? If not, what years did you receive such compensation/income?
4. Did your compensation income exceed the regular IRA contribution limits for each year the excess remained in the IRA?