## How long will my inherited ira last?

Non-investing personal finance issues including insurance, credit, real estate, taxes, employment and legal issues such as trusts and wills
Minot
Posts: 410
Joined: Sat Jan 29, 2011 2:35 pm

### How long will my inherited ira last?

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

The Wizard
Posts: 11487
Joined: Tue Mar 23, 2010 1:45 pm

### Re: How long will my inherited ira last?

Minot wrote: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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grabiner
Posts: 21844
Joined: Tue Feb 20, 2007 11:58 pm
Location: Columbia, MD

### Re: How long will my inherited ira last?

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.)
David Grabiner

Schu
Posts: 64
Joined: Thu May 23, 2013 9:09 pm

### Re: How long will my inherited ira last?

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.

MnD
Posts: 3275
Joined: Mon Jan 14, 2008 12:41 pm

### Re: How long will my inherited ira last?

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

Flobes
Posts: 935
Joined: Tue Feb 16, 2010 12:40 am

### Re: How long will my inherited ira last?

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

The Wizard
Posts: 11487
Joined: Tue Mar 23, 2010 1:45 pm

### Re: How long will my inherited ira last?

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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MnD
Posts: 3275
Joined: Mon Jan 14, 2008 12:41 pm

### Re: How long will my inherited ira last?

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.

The Wizard
Posts: 11487
Joined: Tue Mar 23, 2010 1:45 pm

### Re: How long will my inherited ira last?

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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kaneohe
Posts: 4689
Joined: Mon Sep 22, 2008 12:38 pm

### Re: How long will my inherited ira last?

.......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)

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 2:06 pm, edited 1 time in total.

dickenjb
Posts: 2941
Joined: Tue Jan 05, 2010 1:11 pm

### Re: How long will my inherited ira last?

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.

MnD
Posts: 3275
Joined: Mon Jan 14, 2008 12:41 pm

### Re: How long will my inherited ira last?

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.

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.

Minot
Posts: 410
Joined: Sat Jan 29, 2011 2:35 pm

### Re: How long will my inherited ira last?

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.

MooreBonds
Posts: 153
Joined: Sat Apr 27, 2013 8:54 pm
Location: Missouri

### Re: How long will my inherited ira last?

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.

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!!!

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!)

House Blend
Posts: 4376
Joined: Fri May 04, 2007 1:02 pm

### Re: How long will my inherited ira last?

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.)

MnD
Posts: 3275
Joined: Mon Jan 14, 2008 12:41 pm

### Re: How long will my inherited ira last?

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.

Spirit Rider
Posts: 7542
Joined: Fri Mar 02, 2007 2:39 pm

### Re: How long will my inherited ira last?

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.

donall
Posts: 719
Joined: Tue Mar 13, 2012 6:45 am

### Re: How long will my inherited ira last?

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.

MnD
Posts: 3275
Joined: Mon Jan 14, 2008 12:41 pm

### Re: How long will my inherited ira last?

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
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.

Spirit Rider
Posts: 7542
Joined: Fri Mar 02, 2007 2:39 pm

### Re: How long will my inherited ira last?

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.

Alan S.
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Location: Prescott, AZ

### Re: How long will my inherited ira last?

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.

MarkNYC
Posts: 1293
Joined: Mon May 05, 2008 7:58 pm

### Re: How long will my inherited ira last?

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.