inherited IRA pay out within 10 years

Have a question about your personal investments? No matter how simple or complex, you can ask it here.
Post Reply
User avatar
Topic Author
Indianrock
Posts: 319
Joined: Sat Jan 02, 2010 11:40 am

inherited IRA pay out within 10 years

Post by Indianrock »

Need verification of 10 year payout deadline for inherited IRAs.
I have an inherited IRA at a bank and since the CD is rolling over next month, I've been contemplating where to get a better return. But a larger question came up after reading the article below. The article suggests that for IRAs inherited prior to 2019 you have to withdraw all of it within 10 years of death of original owner.(withdrawals needing to start the year after that death)
Although I inherited it via my mother, she probably never had her own IRA so it started as my father's who died in 2013.
So if it must all be withdrawn by 2024 I may still move it since US Bank's current rates are very low, but take out a third of what's left over the next 3 years to spread the taxes. It isn't all that large and I have enough in Vanguard that I'm not planning on putting any there.

A second question would be if the IRA transfer form from the destination bank is all I need to send in. I'm looking at Capone 360 so sending their completed form to US Bank would be sufficient and no contact or other tasks need to be done with US Bank?


https://www.usbank.com/investing/financ ... d-ira.html
If I was king: once a stock is purchased, you hold it for 30 days.
MrJedi
Posts: 3540
Joined: Wed May 06, 2020 11:42 am

Re: inherited IRA pay out within 10 years

Post by MrJedi »

A spouse Inheriting IRAs has special options not available to other beneficiaries. They have the option to essentially re title the IRA into their own name and assume it as their own IRA and not inherited IRA.

So first you need to find out if mother took father's IRA as her own or if she took it as an inherited IRA. This impacts when the clock started for distributing out of it.
User avatar
David Jay
Posts: 14586
Joined: Mon Mar 30, 2015 5:54 am
Location: Michigan

Re: inherited IRA pay out within 10 years

Post by David Jay »

I am afraid you may have some "cleanup" work. An inherited IRA, inherited in 2019 or earlier requires RMD withdrawals beginning the year after it is inherited.

They are based on your life expectancy, so they are relatively small. But you must take care of all past years (you can apply to waive penalties) with the IRS.

reference: https://www.bogleheads.org/wiki/Require ... stribution
It's not an engineering problem - Hersh Shefrin | To get the "risk premium", you really do have to take the risk - nisiprius
User avatar
Topic Author
Indianrock
Posts: 319
Joined: Sat Jan 02, 2010 11:40 am

Re: inherited IRA pay out within 10 years

Post by Indianrock »

I've been taking the minimum required distributions all along and that would continue.... as far as weather my mother took it as her own or inherited I'm not sure.. I know the way it's listed at US bank right now it still shows her name after mine with some acronym
If I was king: once a stock is purchased, you hold it for 30 days.
BerkeleyChris
Posts: 104
Joined: Sat Feb 09, 2013 10:23 am

Re: inherited IRA pay out within 10 years

Post by BerkeleyChris »

Indianrock wrote: Fri May 27, 2022 7:49 am The article suggests that for IRAs inherited prior to 2019 you have to withdraw all of it within 10 years of death of original owner.(withdrawals needing to start the year after that death)
OP, I think this is opposite. Starting with those inherited after Jan. 1, 2020, the SECURE Act requires the entire balance of the participant's inherited IRA account to be distributed or withdrawn within 10 years of the death of the original owner. The 10-year rule applies regardless of whether the participant dies before, on, or after, the required beginning date (RBD)—the age at which they had to begin RMDs.

When did you inherit the IRA?
User avatar
Topic Author
Indianrock
Posts: 319
Joined: Sat Jan 02, 2010 11:40 am

Re: inherited IRA pay out within 10 years

Post by Indianrock »

The amount that I've been taking over the past several years has been accepted as legitimate by the IRA custodian Bank as well as by the IRS as a required minimum distribution, but that will not exhaust the account within 10 years. I wonder if that's a clue as to the type of inherited IRA this is?
If I was king: once a stock is purchased, you hold it for 30 days.
MrJedi
Posts: 3540
Joined: Wed May 06, 2020 11:42 am

Re: inherited IRA pay out within 10 years

Post by MrJedi »

If mother took IRA as her own and you inherited it in 2020 or later, this would fall under the new 10 year rule.

Otherwise this would fall under the old "stretch" IRA rule but you need to do RMD each year.
User avatar
Topic Author
Indianrock
Posts: 319
Joined: Sat Jan 02, 2010 11:40 am

Re: inherited IRA pay out within 10 years

Post by Indianrock »

Berkeley Chris I inherited this from my mother when she passed in 2017
If I was king: once a stock is purchased, you hold it for 30 days.
MrJedi
Posts: 3540
Joined: Wed May 06, 2020 11:42 am

Re: inherited IRA pay out within 10 years

Post by MrJedi »

If you inherited it in 2017, then I don't think it matters if mother took it as her own or not (somebody else should confirm)...you would fall under the old rule regardless and just need to take the RMD each year...no 10 year emptying rule.
student
Posts: 10761
Joined: Fri Apr 03, 2015 6:58 am

Re: inherited IRA pay out within 10 years

Post by student »

MrJedi wrote: Fri May 27, 2022 8:24 am If you inherited it in 2017, then I don't think it matters if mother took it as her own or not (somebody else should confirm)...you would fall under the old rule regardless and just need to take the RMD each year...no 10 year emptying rule.
That's my understanding.
User avatar
HMSVictory
Posts: 1715
Joined: Sun Nov 01, 2020 6:02 am
Location: Lower Gun Deck

Re: inherited IRA pay out within 10 years

Post by HMSVictory »

Sounds like it was her IRA with you as the beneficiary.

If you inherited the account in 2017 then you do not have to empty the account within 10 years.

You can use the stretch RMD formula.
Stay the course!
User avatar
galawdawg
Posts: 5231
Joined: Thu Dec 14, 2017 11:59 am
Location: Georgia

Re: inherited IRA pay out within 10 years

Post by galawdawg »

This Schwab website has good information as well as an inherited IRA calculator...https://content.schwab.com/ira/understa ... rited-rmd/
User avatar
Topic Author
Indianrock
Posts: 319
Joined: Sat Jan 02, 2010 11:40 am

Re: inherited IRA pay out within 10 years

Post by Indianrock »

Since I believe my father was the original owner, and he passed in 2013, it sounds like we are definitely not under the new Secure Act rules so I just need to continue RMDs with no 10-year emptying required.
Thanks for all the help.
If I was king: once a stock is purchased, you hold it for 30 days.
exodusNH
Posts: 10344
Joined: Wed Jan 06, 2021 7:21 pm

Re: inherited IRA pay out within 10 years

Post by exodusNH »

Indianrock wrote: Fri May 27, 2022 8:35 am Since I believe my father was the original owner, and he passed in 2013, it sounds like we are definitely not under the new Secure Act rules so I just need to continue RMDs with no 10-year emptying required.
Thanks for all the help.
Something to consider: since you are forced to take some withdrawal from the account, you may want to have this IRA hold all of your fixed income. You then adjust your other accounts to being you back into balance. As you withdraw from this IRA, you'd compensate by buying an equivalent amount of bonds in your other accounts.

Since bonds don't grow as fast, you limit how quickly this one account grows, minimizing the taxable income that you're forced to recognize.
Alan S.
Posts: 12669
Joined: Mon May 16, 2011 6:07 pm
Location: Prescott, AZ

Re: inherited IRA pay out within 10 years

Post by Alan S. »

Indianrock wrote: Fri May 27, 2022 8:35 am Since I believe my father was the original owner, and he passed in 2013, it sounds like we are definitely not under the new Secure Act rules so I just need to continue RMDs with no 10-year emptying required.
Thanks for all the help.
This is correct. The Secure Act only affects this IRA after YOUR death.

While you can simply continue your life expectancy RMDs after resetting the divisors to account for the new 2022 RMD tables, starting in 2018 you would have to know if you are a designated beneficiary of your mother OR just a successor beneficiary. Your RMDs would vary considerably.

1) Although mother apparently did not assume ownership, there are two other circumstances under which she is deemed to have become the owner. The first is failing to take the full beneficiary RMD for 2014-2016. If she fell short by even a dollar, she became the owner regardless of how the IRA was titled. The second is fairly unlikely - that she did not have to take any RMDs as beneficiary because father would not yet have reached 70.5 by the end of 2017. If she became the owner under any of these 3 situations, then YOU are a designated beneficiary and your RMDs starting in 2018 would be based on your attained age in 2018 and the single life table. The 2018 divisor would be reduced by 1.0 for 2019. No RMD for 2020 required, and for 2021 the 2018 divisor would by 3.0. For 2022 you would have to reset the divisor for the new tables by determining what your starting 2018 divisor would have been had the new tables been in force then, then reducing that divisor by 4.0 to get your 2022 divisor.

2) However, if mother was never deemed the owner under any of the above situations, then you are only a successor beneficiary to mother. Rather than using your own life expectancy, you would have to continue mother's RMD schedule subject to resetting the 2022 divisor for the new tables. These RMDs would be sharply higher as a successor beneficiary to mother compared to being the designated beneficiary if instead she was deemed the owner.

Not sure how you have been determining your RMDs to date - but Secure is not an issue for you. But you might find that your RMDs have been insufficient or you might find they have been too high, or perhaps they have been correct.

Believe it or not, if mother had passed in 2020, your options would have been dramatically different, and thanks to the Secure Act, possibly even more complicated!
wolf359
Posts: 3207
Joined: Sun Mar 15, 2015 8:47 am

Re: inherited IRA pay out within 10 years

Post by wolf359 »

exodusNH wrote: Fri May 27, 2022 8:51 am
Indianrock wrote: Fri May 27, 2022 8:35 am Since I believe my father was the original owner, and he passed in 2013, it sounds like we are definitely not under the new Secure Act rules so I just need to continue RMDs with no 10-year emptying required.
Thanks for all the help.
Something to consider: since you are forced to take some withdrawal from the account, you may want to have this IRA hold all of your fixed income. You then adjust your other accounts to being you back into balance. As you withdraw from this IRA, you'd compensate by buying an equivalent amount of bonds in your other accounts.

Since bonds don't grow as fast, you limit how quickly this one account grows, minimizing the taxable income that you're forced to recognize.
It sounds like the IRA was originally invested in CDs, and the OP looks like they were moving to another bank (more CDs.)

Which raises an interesting question: Is it more beneficial to take advantage of a Stretch IRA by actually maximizing the balance? If it were sent to a brokerage account and invested in a standard 3-fund portfolio, and amounts withdrawn are simply reinvested in a taxable account, then the OP's taxes will be higher, but so will the OP's net worth and income.

Investing in CDs and/or bonds to keep the balance low does in fact minimize the taxes generated by the account. However, it also negates the advantage of a stretch IRA in the first place.

Don't let the tax tail wag the dog.
exodusNH
Posts: 10344
Joined: Wed Jan 06, 2021 7:21 pm

Re: inherited IRA pay out within 10 years

Post by exodusNH »

wolf359 wrote: Fri May 27, 2022 12:09 pm
exodusNH wrote: Fri May 27, 2022 8:51 am
Indianrock wrote: Fri May 27, 2022 8:35 am Since I believe my father was the original owner, and he passed in 2013, it sounds like we are definitely not under the new Secure Act rules so I just need to continue RMDs with no 10-year emptying required.
Thanks for all the help.
Something to consider: since you are forced to take some withdrawal from the account, you may want to have this IRA hold all of your fixed income. You then adjust your other accounts to being you back into balance. As you withdraw from this IRA, you'd compensate by buying an equivalent amount of bonds in your other accounts.

Since bonds don't grow as fast, you limit how quickly this one account grows, minimizing the taxable income that you're forced to recognize.
It sounds like the IRA was originally invested in CDs, and the OP looks like they were moving to another bank (more CDs.)

Which raises an interesting question: Is it more beneficial to take advantage of a Stretch IRA by actually maximizing the balance? If it were sent to a brokerage account and invested in a standard 3-fund portfolio, and amounts withdrawn are simply reinvested in a taxable account, then the OP's taxes will be higher, but so will the OP's net worth and income.

Investing in CDs and/or bonds to keep the balance low does in fact minimize the taxes generated by the account. However, it also negates the advantage of a stretch IRA in the first place.

Don't let the tax tail wag the dog.
I guess it depends on their income level and how big the RMD is.

I was thinking with the 10 years, you probably want to minimize growth, but with this being a stretch, it might.change the calculation.
miket29
Posts: 1065
Joined: Tue Jun 20, 2017 9:07 pm

Re: inherited IRA pay out within 10 years

Post by miket29 »

I recently read this article from March 2022 online which says in part
Under the new regulations, if you inherited a traditional IRA from someone who had already passed their required beginning date and had been taking out payments (required minimum distributions/RMDs), you can’t wait until year 10 to take out the money out. Instead, you have to take annual distributions in years 1 to 9 and the balance in year 10.
https://www.forbes.com/sites/ashleaebel ... d63a716ac3
Not sure if this applies to you or not, though.
wolf359
Posts: 3207
Joined: Sun Mar 15, 2015 8:47 am

Re: inherited IRA pay out within 10 years

Post by wolf359 »

exodusNH wrote: Fri May 27, 2022 12:12 pm
I guess it depends on their income level and how big the RMD is.

I was thinking with the 10 years, you probably want to minimize growth, but with this being a stretch, it might.change the calculation.
Personally, I believe income level and size of the RMD is irrelevant.

If your boss offered to double your salary for the same job, would your answer be "No, I want to keep my income low to minimize my taxes?"

The 10 year period in the SECURE Act complicates things, but there it's a matter of how you spread it to minimize the taxes. You can't avoid the time limit. But if you're grandfathered and allowed to stretch it as long as possible, why not stretch it as long as possible?
Post Reply