How long will my inherited ira last?

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How long will my inherited ira last?

Postby Minot » Sat Aug 31, 2013 9:11 pm

Is there a simple way to estimate how long my non-spousal inherited ira will last if I only take the RMDs?
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Re: How long will my inherited ira last?

Postby The Wizard » Sat Aug 31, 2013 9:18 pm

Minot wrote:Is there a simple way to estimate how long my non-spousal inherited ira will last if I only take the RMDs?

Yes, it will last forever, at least your lifetime..
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Re: How long will my inherited ira last?

Postby grabiner » Sat Aug 31, 2013 9:23 pm

Minot wrote:Is there a simple way to estimate how long my non-spousal inherited ira will last if I only take the RMDs?


You use the IRS life expectancy table from IRS Publication 590. The RMD is this fraction of the balance with the denominator decreased by 1 every year. Thus, if you have a 30-year life expectancy when you inherit the IRA, your RMD in the first year is 1/30 of the balance, in the second is 1/29, and so on, until the 30th year when you must withdraw the entire balance as an RMD (even though, if you have survived 30 years, your life expectancy is much more than a year.)
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Re: How long will my inherited ira last?

Postby Schu » Sat Aug 31, 2013 9:24 pm

Just taking the RMD, it should last to the end of your life expectancy, whether it's you or anyone who inherits the IRA after you. But it's a single calculation, all based on your life expectancy, and not that of any future beneficiary.

It doesn't last forever like a regular IRA. Life expectancy doesn't get calculated, recalculated and recalculated When I'm 84, my inherited IRA will be gone.
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Re: How long will my inherited ira last?

Postby MnD » Sat Aug 31, 2013 10:08 pm

I wonder how many people are doing it wrong - going back to the table each year and dividing by the updated life expectancy.
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Re: How long will my inherited ira last?

Postby Flobes » Sat Aug 31, 2013 10:16 pm

Minot wrote:Is there a simple way to estimate how long my non-spousal inherited ira will last if I only take the RMDs?


Very simple to use, online calculator to see your lifetime with your inherited IRA:
http://www.hughchou.org/calc/mrd.cgi
It'll show you RMDs and account balances, how they'll change if you alter the yield, and how long it will last.
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Re: How long will my inherited ira last?

Postby The Wizard » Sat Aug 31, 2013 10:54 pm

MnD wrote:I wonder how many people are doing it wrong - going back to the table each year and dividing by the updated life expectancy.

You mean you're not supposed to use updated expectancies?
If I'm 80 years old, I have a certain life expectancy and RMDs are based on that, right?
No matter how I got there...

Or is Inherited different from regular IRAs?
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Re: How long will my inherited ira last?

Postby MnD » Sat Aug 31, 2013 11:00 pm

The Wizard wrote:
MnD wrote:I wonder how many people are doing it wrong - going back to the table each year and dividing by the updated life expectancy.

You mean you're not supposed to use updated expectancies?
If I'm 80 years old, I have a certain life expectancy and RMDs are based on that, right?
No matter how I got there...


Not for non-spousal inherited IRA's (that do not become your own IRA).
You are supposed to go to the IRS table once, to get your life expectancy when you inherited it (or the year after - I forget).
Then each subsequent year subtract one year from that in the denominator to determine RMD.
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Re: How long will my inherited ira last?

Postby The Wizard » Sat Aug 31, 2013 11:14 pm

MnD wrote:Not for non-spousal inherited IRA's (that do not become your own IRA).
You are supposed to go to the IRS table once, to get your life expectancy when you inherited it (or the year after - I forget).
Then each subsequent year subtract one year from that in the denominator to determine RMD.

OK, good, so now the younger folks know.
I'm too old to inherit anything going forward anymore.
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Re: How long will my inherited ira last?

Postby kaneohe » Sun Sep 01, 2013 2:05 am

.......and you're supposed to pick the correct table out of the 3 provided.........might seem obvious if you see it listed like this:

Tables and Checklists (just to avoid confusion, pls be aware that the order of these tables from a website is different
than in Pub 590)

Uniform Lifetime Table
Joint Life Expectancy Tables
Single Life Expectancy Table for Beneficiaries

but not as obvious if you just see the first one and don't read the fine print. Seems to me that the last sentence should be FIRST IN CAPS and colored RED

Uniform Distribution Table
This table is the new life expectancy table to be used by all IRA owners to calculate lifetime distributions (unless your beneficiary is your spouse who is more than 10 years younger than you). In that case, you would not use this table, you would use the actual joint life expectancy of you and your spouse based on the regular joint life expectancy table. The Uniform Distribution Table is never used by IRA beneficiaries to compute required distributions on their inherited IRAs.
Last edited by kaneohe on Sun Sep 01, 2013 3:06 pm, edited 1 time in total.
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Re: How long will my inherited ira last?

Postby dickenjb » Sun Sep 01, 2013 8:42 am

Non spouse beneficiaries use Table I and do not get to recalculate.

So if you are 55, your divisor is 29.6 and your RMD would be 1/29.6 of the previous 12/31 end of year balance.

The next year it would be 1/28.6

As grabiner points out, at your life expectancy it becomes unity and you have to withdraw it all.
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Re: How long will my inherited ira last?

Postby MnD » Sun Sep 01, 2013 9:43 am

I've known a couple friends that were going back to Table 1 to recalculate every year.
A friend who did know and use the right method had a financial retirement advisor make them a plan for retirement income (when to take and spend what) and he used the wrong "recalculate" method for her expected inherited IRA withdrawals. :shock:

I'm sure most people use the correct method but I suspect a significant minority are doing it wrong.
The account year-end balance isn't reported and you don't have to show your work on your return, so this wouldn't be detected unless you had a full audit.
I don't believe Turbotax does any checks either - having you enter the year end account balance and date of death and throwing an error flag if your reported inh IRA income is less than the correctly computed RMD would be helpful.
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Re: How long will my inherited ira last?

Postby Minot » Sun Sep 01, 2013 11:37 am

Thanks to all who answered, and special thanks to flobes for the calculator. I tried to find one like it with Google, but all I seemed to come up with were for this year's RMD. I let Vanguard do my annual calculations, but it's helpful to have an easy way to estimate what future year RMDs will be.
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Re: How long will my inherited ira last?

Postby MooreBonds » Sun Sep 01, 2013 11:49 am

MnD wrote:I've known a couple friends that were going back to Table 1 to recalculate every year.
A friend who did know and use the right method had a financial retirement advisor make them a plan for retirement income (when to take and spend what) and he used the wrong "recalculate" method for her expected inherited IRA withdrawals. :shock:

I'm sure most people use the correct method but I suspect a significant minority are doing it wrong.


I just wanted to say thanks to the OP and for all of the respondents to this thread - I inherited part of my grandmother's IRA last year (she had already started RMDs before her passing), and I thought that you simply used the Table 1 and recalculated every year!!! :oops:

I re-read the IRS literature on beneficiary IRAs (non-spouse), and I see where I misinterpreted the rule of "subtracting 1" from the year...I just thought they meant changing the age by 1 year, since it seemed "obvious" that you would just go by your age each year, not just the first year you happened to inherit it.

(Thankfully, given my age, the "subtract 1" wound up giving me the exact same divisor for 2013 as it would have using my incorrect method, so my withdrawal for 2013 won't need to change...but it would have had a big difference in 5-10 years!)
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Re: How long will my inherited ira last?

Postby House Blend » Sun Sep 01, 2013 1:56 pm

Thanks, wasn't aware of this life-expectancy rule for inherited IRAs.

This will be fun. If I start with a life expectancy 31.4 years, then at some point my RMD will be 1/0.4 = 2.5 times the account balance on the previous December 31. When that time comes, I guess I should load up on a 3 x leveraged Emerging Markets ETF.

MnD wrote:The account year-end balance isn't reported and you don't have to show your work on your return, so this wouldn't be detected unless you had a full audit. I don't believe Turbotax does any checks either - having you enter the year end account balance and date of death and throwing an error flag if your reported inh IRA income is less than the correctly computed RMD would be helpful.


Umm, no. No audit necessary. Every IRA custodian reports end of year account balances to the IRS and to their account holders on Form 5498. So if they choose
to, the IRS can compute your RMD and see if you were short. (I have no idea what TurboTax does.)
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Re: How long will my inherited ira last?

Postby MnD » Sun Sep 01, 2013 6:09 pm

House Blend wrote:
MnD wrote:The account year-end balance isn't reported and you don't have to show your work on your return, so this wouldn't be detected unless you had a full audit. I don't believe Turbotax does any checks either - having you enter the year end account balance and date of death and throwing an error flag if your reported inh IRA income is less than the correctly computed RMD would be helpful.


Umm, no. No audit necessary. Every IRA custodian reports end of year account balances to the IRS and to their account holders on Form 5498. So if they choose
to, the IRS can compute your RMD and see if you were short. (I have no idea what TurboTax does.)


Nope - no Form 5498 for an inherited IRA. Those are generated when contributions are made, and non-spousal beneficiaries may not contribute to inherited IRA's. Beneficiaries get a 1099-R in years that they take a distribution (RMD or otherwise) but that does not list the fair market value.
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Re: How long will my inherited ira last?

Postby Spirit Rider » Sun Sep 01, 2013 6:53 pm

MnD wrote:Nope - no Form 5498 for an inherited IRA. Those are generated when contributions are made, and non-spousal beneficiaries may not contribute to inherited IRA's. Beneficiaries get a 1099-R in years that they take a distribution (RMD or otherwise) but that does not list the fair market value.

Respectively disagree, an inherited IRA most certainly gets a Form 5498. While no contributions are allowed, it lists the fair market value for RMD calculations.
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Re: How long will my inherited ira last?

Postby donall » Mon Sep 02, 2013 1:22 am

Thanks for this explanation, as i was one of those that recalculated every year. Luckily rounded up the distributions to a nice whole number, so took out enough.
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Re: How long will my inherited ira last?

Postby MnD » Tue Sep 03, 2013 5:35 pm

Spirit Rider wrote:
MnD wrote:Nope - no Form 5498 for an inherited IRA. Those are generated when contributions are made, and non-spousal beneficiaries may not contribute to inherited IRA's. Beneficiaries get a 1099-R in years that they take a distribution (RMD or otherwise) but that does not list the fair market value.

Respectively disagree, an inherited IRA most certainly gets a Form 5498. While no contributions are allowed, it lists the fair market value for RMD calculations.


My broker (one of the "big two" discount ones) has not been generating a 5498 for a non-contributory inherited IRA for going on 14 years now.
I checked my paper file and also did an online search at the brokerage 5 years back for all forms generated by the account.
I get a 1099-R and a "gain/loss" statement annually. Nothing that reports to the IRS the fair market value.

Do you have a non-contributory inherited IRA that is generating an annual 5498?

This guideline from another investment firm implies that a holder of a noncontributory IRA taking RMD's would receive a 1099-R but not a 5498.

3. Why am I receiving Form 5498?
You are receiving the form because you made one
or more of the following types of IRS-reportable
activities with regard to your IRA: Traditional IRA
or Roth IRA contributions, rollover contributions,
Roth conversions, recharacterized contributions,
and/or SEP and SIMPLE IRA contributions.

4. What are some transactions that are not
included on Form 5498?
Custodian-to-custodian transfers, where you never
took possession of the assets, are non-reportable
transactions for the IRS and will not be reflected
on Form 5498. In addition, any distributions that
you took during the 2012 tax year were reported
on Form 1099-R issued in January.
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Re: How long will my inherited ira last?

Postby Spirit Rider » Tue Sep 03, 2013 6:09 pm

MnD wrote:Do you have a non-contributory inherited IRA that is generating an annual 5498?

Yes, I have received one each year from Fidelity.

Here are "Instructions for Forms 1099-R and 5498" from the IRS website.

Inherited IRAs. In the year an IRA participant dies, you, as an IRA trustee or issuer, generally must file a Form 5498 and furnish an annual statement for the decedent and a Form 5498 and an annual statement for each nonspouse beneficiary. An IRA holder must be able to identify the source of each IRA he or she holds for purposes of figuring the taxation of a distribution from an IRA. Thus, the decedent's name must be shown on the beneficiary's Form 5498 and annual statement. For example, you may enter “Brian Willow as beneficiary of Joan Maple” or something similar that signifies that the IRA was once owned by Joan Maple. You may abbreviate the word “beneficiary” as, for example, “bene.”

For more information about the reporting requirements for inherited IRAs, see Rev. Proc. 89-52, 1989-2 C.B. 632.
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Re: How long will my inherited ira last?

Postby Alan S. » Tue Sep 03, 2013 8:14 pm

There is a good reason for the various interpretations of custodian responsibility for inherited IRAs. They do not address the requirements consistently and much of the fault lies in the IRS Inst for Form 5498 here:
http://www.irs.gov/pub/irs-pdf/i1099r.pdf

On p 18 requirements for owned IRAs are provided with two alternate options. There is a statement that until further Notice there are no reporting requirements for inherited IRAs. Following this there is a paragraph on "inherited IRAs" which starts with a year of death reporting requirement. Finally, another paragraph indicates that annual statements are required in later years. But since the verbiage is somewhat different between owned IRAs and inherited IRAs and many have not read these sections completely, there is widespread confusion and different approaches by IRA custodians.

After reading p 18 and 19 in the attached forms, if anyone has a different interpretation, it would be useful to point it out. Meanwhile, if the IRS is not collecting taxes on inherited IRA RMDs, a good part of the blame lies with the IRS itself.
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Re: How long will my inherited ira last?

Postby MarkNYC » Tue Sep 03, 2013 8:56 pm

Without a specific source to quote, my understanding is this: In general, Form 5498 must be filed with the IRS by June 1 and a copy sent to the participant by the same date. In addition, the IRA custodian/trustee must provide the participant an additional report before that deadline - by January 31, providing the prior year-end fair market value of the account in any written format. If the custodian provides the participant with this 1/31 statement, and no contributions were made to the account for the prior year, then the custodian does not have to send a copy of Form 5498 to the participant, but the form still must be filed with the IRS. If the 5498 is not sent to the particpant in this situation, then the 1/31 statement must contain a legend indicating what information is being sent to the IRS. There are special rules for Form 5498 reporting for the year of death of the IRA owner.
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