I inherited an IRA from our 79 year cousin last year. She was already taking her RMD. The 10 year rule, do I have withdraw funds yearly or can I wait until year 10.

[NCperson · Accepted solution]

@tftoolan - 

you are required to take RMDs each year she was subject to RMDs.  You can not wait until the 10th year.  And practically, you may want to find a way to smooth the distribuitons each year to a number higher than the RMD  calculation in any event over the course of the 10 years.  Otherwise, you may have a large lump in Year 10, which could put you into a higher tax bracket for that 10th year.  Everyone's tax situation is different. 

How old are you?  there are different calculations to determine RMD if you were within 10 years of her age versus being more than 10 years younger.  But again, you may find the taxes lower over the course of the 10 years to take more than the RMD amount each year only to have this large tax bill in a higher tax bracket in year 10. 

[Opus 17 · Accepted solution]

The 10 year rule means you must withdraw and close the account within 10 years, it does not mean you have to wait 10 years. You may withdraw any amount at any time for any reason.

Separately, because your cousin was after her beginning RMD year, you must withdraw an RMD each year that you have the account until you close it. Remember that an RMD is the required minimum amount you must withdraw, you could always withdraw more if you wanted to.

[tftoolan]

Hey,

Thanks for responding so quickly.  I am 58 and plan to retire in about 5 years. 

I was hoping to wait to withdraw the funds until after I retired and my tax bracket decreased significantly. 

I appreciate your reply.  

Tom 

[fanfare]

IRS has waived the penalty for not taking inherited IRA RMD in 2023 when owner had started RMD.

Effectively, that means you do not have to take an RMD in 2023.

@tftoolan 

[NCperson]

@tftoolan 

Since you Aunt passed on 2022, you have 10 years to liquidate and 2023 is Year 1.

As noted, because of the confusion on how this works, the IRS will waive any penalties for not taking the RMD in 2023, so you are 'good' if you don't take RMD in 2023

the calculation of the RMD is based on your age on your birthday in 2023, and I will assume that has occured already.   

for 2023, your RMD is the 12/31/22 balance divided by 28.9 (look at the table in this link and the number next to 58 years old).  If you don't take this RMD, there is no penalty. 

For 2024, your RMD is the 12/31/23 balance divided by 27.9 (don't use the table, just subtract 1 from the 2023 divisor).

in 2025, the divisor is 26.9, etc.

So seems like your strategy is to only take RMD during your high income years.  That makes sense.  Suggest determining what tax bracket you have the appetite for once retired and withdraw as much as it takes to get to the top of that tax bracket, so that you have liquidated by the end of 2032.   

 A few warnings that may impact your approach: 

1) the tax cut from 2017 only lasts 8 years, so unless Congress does something, the tax brackets will automatically increase in 2026.  (they will move back to the 2017 tax brackets, adjusted for 8 years of inflation).

2) once you are on Mediciare, there is something called "IRMAA" which is a steath tax that increases your Medicare premiums if your income is elevated.  If your income (after you retire but including the the IRA withdrawals) exceeds ~$105,000 (SINGLE) or ~$210,000 (JOINT), please read this link - very informative and explains how it works. 

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

good luck! 

https://www.irs.gov/publications/p590b#en_US_2022_publink100089977

[Opus 17]

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@tftoolan wrote:

Hey,

Thanks for responding so quickly.  I am 58 and plan to retire in about 5 years. 

I was hoping to wait to withdraw the funds until after I retired and my tax bracket decreased significantly. 

I appreciate your reply.  

Tom 

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If you declare retirement with social security at age 62, your benefit will be significantly reduced compared to waiting for your full retirement age, which is around age 67.  If you stop working, and use the IRA withdrawals to provide equivalent income, you may be able to delay taking social security and get a higher benefit.  It would be worth discussing with a financial planner.