Inherited IRA

[Artbuc]

Jurisdiction

Delaware

My sister recently passed and bequeathed her IRA equally to her two sons. One nephew asked me for advice on how he should handle his inheritance. I believe his options are straightforward but I do have one question. If nephew decides to put money in an inherited IRA, he has 10 years to take it out. But, he must take his mother's 2022 RMD before 12/31/2022, right? This assumes, of course, she has not already taken it. Thanks for your help.

 

[Tax Counsel]

My sister recently passed and bequeathed her IRA equally to her two sons. One nephew asked me for advice on how he should handle his inheritance. I believe his options are straightforward but I do have one question. If nephew decides to put money in an inherited IRA, he has 10 years to take it out. But, he must take his mother's 2022 RMD before 12/31/2022, right? This assumes, of course, she has not already taken it. Thanks for your help.

The IRS page on required minimum distributions (RMDs) answers that as follows: "For the year of the account owner's death, use the RMD the account owner would have received. For the year following the owner's death, the RMD will depend on the identity of the designated beneficiary."

 

[Artbuc]

Thanks for confirming that. As a designated beneficiary (as opposed to an eligible designated beneficiary) my nephew will take distributions under the 10 year rule, right? That means he can take distributions anytime he wants or take no periodic distributions as long as the inherited IRA is completely withdrawn by the 10th anniversary of his mother's passing, correct?

 

[army judge]

As a designated beneficiary (as opposed to an eligible designated beneficiary) my nephew will take distributions under the 10 year rule, right? That means he can take distributions anytime he wants or take no periodic distributions as long as the inherited IRA is completely withdrawn by the 10th anniversary of his mother's passing, correct?

It isn't wise to pursue FREE financial and tax guidance from anonymous entities.

 

[Artbuc]

It isn't wise to pursue FREE financial and tax guidance from anonymous entities.

I am not asking for advice, I am asking for clarification of the IRS code.

 

[Tax Counsel]

Thanks for confirming that. As a designated beneficiary (as opposed to an eligible designated beneficiary) my nephew will take distributions under the 10 year rule, right? That means he can take distributions anytime he wants or take no periodic distributions as long as the inherited IRA is completely withdrawn by the 10th anniversary of his mother's passing, correct?

Correct. IRS Publication 590-B, page 11, has this to say about distributions under the 10 year rule:

10-year rule. The 10-year rule requires the IRA bene- ficiaries who are not taking life expectancy payments to withdraw the entire balance of the IRA by December 31 of the year containing the 10th anniversary of the owner's death. For example, if the owner died in 2021, the beneficiary would have to fully distribute the IRA by December 31, 2031. The beneficiary is allowed, but not required, to take distributions prior to that date.​

Just be aware that if you push distribution to the 10th and final year, the large payout may push you to a higher tax bracket than would otherwise have been the case if distributions had periodically been made over the 10 years.

 

[Artbuc]

Correct. IRS Publication 590-B, page 11, has this to say about distributions under the 10 year rule:

10-year rule. The 10-year rule requires the IRA bene- ficiaries who are not taking life expectancy payments to withdraw the entire balance of the IRA by December 31 of the year containing the 10th anniversary of the owner's death. For example, if the owner died in 2021, the beneficiary would have to fully distribute the IRA by December 31, 2031. The beneficiary is allowed, but not required, to take distributions prior to that date.​

Just be aware that if you push distribution to the 10th and final year, the large payout may push you to a higher tax bracket than would otherwise have been the case if distributions had periodically been made over the 10 years.

Got it, thx.