Inherit an IRA?
You inherited an IRA, now what? When you inherit an IRA, you are called the beneficiary. Some IRA beneficiaries are subject to required minimum distributions (RMDs) while others are not. In late 2019 congress enacted the SECURE Act and changed the rules for inherited IRAs. Here is short video with what you need to know https://youtu.be/AwP8JRsBlK0 or continue reading…
First, an easy question – are you a person or a non-person? Examples of non-persons are trusts and charities.
Next, determine if you are an “Eligible Beneficiary”. You are an Eligible Beneficiary if you are a person and can answer yes to any of the following:
Was the original IRA owner your spouse? Note: Spouses have extra options, but that is a whole different video.
Are you the child of the original owner AND under 18?
Are you disabled or chronically ill?
Were you no less than 10 years younger than the original account owner?
If you answered yes to any of those questions, then you are an eligible beneficiary and you may elect to take RMDs. You may “Stretch” your RMDs over your lifetime. If you elect to take RMDs, you must take one each year, starting the year after the original owner dies. If you do not take RMDs then you must empty the account by the end of the fifth year after the original account owner died. So, for example, if the original owner died in January 2020, you must take your first RMD in 2021 before December 31, or have it emptied by December 31st, 2026.
If you can’t answer “yes” to any of the questions above and are a person, then you are a “Non-Eligible” Beneficiary and… no RMD option for you! Instead you are subject to the 10-year rule. The 10-year rule, simply put, requires that all assets of the inherited IRA are to be distributed by the end of the 10th year after the death of the original account owner. You can take it 1/10th per year, take it all immediately, wait until the last year, or any combination of withdrawals that has the account balance to zero by the end of the 10th year.
Inheriting an IRA has always presented a planning opportunity for the beneficiary. When developing your strategy of what to do with your inherited IRA, at a minimum, it is important to consider:
Income tax implications
Possibility for further tax-deferred or tax-free growth
How the account should be invested
Be sure to develop a sound strategy that is in harmony with the rest of your financial plan. Be sure to consult with a tax and/or investment professional.
Call us! We can help you develop a winning strategy.
