87 Year Old Mother Inherits Her Sons IRA

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Philx
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Joined: Sun Apr 18, 2021 6:34 am

87 Year Old Mother Inherits Her Sons IRA

Post by Philx »

Would a person that is knowledgeable with Parent Inherited IRA's review the background information and provide feedback on my understanding of the Inherited IRA.

Background Information:
My 64 year old brother, unmarried, passed away in July of 2022. He was employed, not retired and not taking RMDs. My mother was named as his IRA beneficiary ($18,000).

My mother is 87, is in good health, lives by herself, needs no assistance, has no savings or investments, but can make ends meet from her $1500 monthly Social Security check. She is grateful for the IRA from my brother. She is concerned that any distribution (even if she took 10%/year $1800/yr) will impact her tax status, medicaid/medicare. Since her entire income is from social security, she has not filed a tax return for a number of years and does not want to change what works.

My Understanding:
Since the IRA is from her son, not from a spouse, and my brother was not retired/not taking RMDs, my understanding is the distribution for this IRA would follow the standard 10-year rule and therefore no yearly RMD is required. Is this correct?

To avoid any yearly distribution until she needs it, would it make sense to create an inherited IRA in her name and leave the money untouched in that IRA to minimize the impact to her tax status, medicaid and medicare and then deal with it when she is needs it?

Finally, would a withdrawal of 10%/year - $1800/yr be the better strategy than delaying the distribution in a lump sum at the end?

Thank you for your responses
exodusNH
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Joined: Wed Jan 06, 2021 8:21 pm

Re: 87 Year Old Mother Inherits Her Sons IRA

Post by exodusNH »

Philx wrote: Thu Sep 22, 2022 6:11 pm Would a person that is knowledgeable with Parent Inherited IRA's review the background information and provide feedback on my understanding of the Inherited IRA.

Background Information:
My 64 year old brother, unmarried, passed away in July of 2022. He was employed, not retired and not taking RMDs. My mother was named as his IRA beneficiary ($18,000).

My mother is 87, is in good health, lives by herself, needs no assistance, has no savings or investments, but can make ends meet from her $1500 monthly Social Security check. She is grateful for the IRA from my brother. She is concerned that any distribution (even if she took 10%/year $1800/yr) will impact her tax status, medicaid/medicare. Since her entire income is from social security, she has not filed a tax return for a number of years and does not want to change what works.

My Understanding:
Since the IRA is from her son, not from a spouse, and my brother was not retired/not taking RMDs, my understanding is the distribution for this IRA would follow the standard 10-year rule and therefore no yearly RMD is required. Is this correct?

To avoid any yearly distribution until she needs it, would it make sense to create an inherited IRA in her name and leave the money untouched in that IRA to minimize the impact to her tax status, medicaid and medicare and then deal with it when she is needs it?

Finally, would a withdrawal of 10%/year - $1800/yr be the better strategy than delaying the distribution in a lump sum at the end?

Thank you for your responses
She/you should do an experiment and fill out her 2021 tax form with the additional $1800 of income and see what the numbers work out to. It may not be as bad as she fears.
HomeStretch
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Joined: Thu Dec 27, 2018 3:06 pm

Re: 87 Year Old Mother Inherits Her Sons IRA

Post by HomeStretch »

Medicaid varies by state. If she is receiving state Medicaid assistance with Medicare costs or if she is on Medicaid for healthcare or receives any other public assistance, you need to check each program’s guidelines to see how any RMD income or the inherited $18k IRA asset affects her program status.

Depending on the assistance she receives, there may be a Medicaid notification requirement (in my state I think there is a 10-day deadline for program recipients to notify Medicaid of changes to income/assets).

If the inherited IRA asset or income does cause an issue, consider finding out what happens if your mom disclaims the inheritance. If the IRA would then be inherited by you, one possibility is that you accept the IRA and use the proceeds to buy extras for your mom or to pay some bills in a manner that doesn’t affect her eligibility.
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FiveK
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Re: 87 Year Old Mother Inherits Her Sons IRA

Post by FiveK »

Philx wrote: Thu Sep 22, 2022 6:11 pm My mother was named as his IRA beneficiary ($18,000).

My mother is 87, is in good health, lives by herself, needs no assistance, has no savings or investments, but can make ends meet from her $1500 monthly Social Security check. She is grateful for the IRA from my brother. She is concerned that any distribution (even if she took 10%/year $1800/yr) will impact her tax status, medicaid/medicare. Since her entire income is from social security, she has not filed a tax return for a number of years and does not want to change what works.
Don't know about any state filing requirement, but with her income solely $18K/yr from SS, there won't be a 2022 federal filing requirement unless her IRA withdrawal exceeds $14,700, the standard deduction for someone her age. If state tax is not an issue, she might take out $9000 this year and the rest next year, just to simplify things (i.e., no more RMD concerns).

Because she won't be paying any tax (again, assuming no state tax), a taxable account is as good as an IRA for her.

HomeStretch addressed the Medicaid issue, and the "income" for that may differ from the Form 1040 Adjusted Gross Income (AGI). With $9K IRA withdrawal, none of the $18K SS would count toward 1040 AGI, but for example income for ACA purposes would include all $18K SS.
Dottie57
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Re: 87 Year Old Mother Inherits Her Sons IRA

Post by Dottie57 »

So $1800 per year is $150per month for 10 years.
So if she get 1500 ss plus 150 rmd that gives $1650 per month. Will that keep her able to have medicaid?

Will having $18k Ira pose a problem for medicaid?

Could she disclaim and you inherit. And you gift the money each month or pay a monthly expense.
Alan S.
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Location: Prescott, AZ

Re: 87 Year Old Mother Inherits Her Sons IRA

Post by Alan S. »

Philx wrote: Thu Sep 22, 2022 6:11 pm Would a person that is knowledgeable with Parent Inherited IRA's review the background information and provide feedback on my understanding of the Inherited IRA.

Background Information:
My 64 year old brother, unmarried, passed away in July of 2022. He was employed, not retired and not taking RMDs. My mother was named as his IRA beneficiary ($18,000).

My mother is 87, is in good health, lives by herself, needs no assistance, has no savings or investments, but can make ends meet from her $1500 monthly Social Security check. She is grateful for the IRA from my brother. She is concerned that any distribution (even if she took 10%/year $1800/yr) will impact her tax status, medicaid/medicare. Since her entire income is from social security, she has not filed a tax return for a number of years and does not want to change what works.

My Understanding:
Since the IRA is from her son, not from a spouse, and my brother was not retired/not taking RMDs, my understanding is the distribution for this IRA would follow the standard 10-year rule and therefore no yearly RMD is required. Is this correct?

To avoid any yearly distribution until she needs it, would it make sense to create an inherited IRA in her name and leave the money untouched in that IRA to minimize the impact to her tax status, medicaid and medicare and then deal with it when she is needs it?

Finally, would a withdrawal of 10%/year - $1800/yr be the better strategy than delaying the distribution in a lump sum at the end?

Thank you for your responses
She has some options for RMDs.
1) She is an eligible designated beneficiary (EDB), being older than her son. An EDB would use their own single life expectancy, but due to her age, her initial divisor for 2023 would be 6.6 (age 88). Her first RMD would be around 2,700, and since that's about 15% of the balance, no future RMD would likely be more, and would probably be less. You might check into how that would influence any govt benefits, and it probably would not require her to file a return or result in taxing any of her SS benefit.

2) But if you discover some downside to the above, she has another option. Because son passed prior to the start of his RMDs, Mom could elect OUT OF EDB treatment and into the 10 year rule. Under the 10 year rule there would be no annual RMDs, but she could certainly take distributions if she wanted to. But come 2032, she would have to drain the inherited IRA at 97. This might mess up that one year, but it's 10 years out and beyond her life expectancy. It is also beyond the 7 years in which she would have to drain the inherited IRA if she stuck with EDB treatment.
Topic Author
Philx
Posts: 9
Joined: Sun Apr 18, 2021 6:34 am

Re: 87 Year Old Mother Inherits Her Sons IRA

Post by Philx »

Thank you for the insightful responses. I will dig into each of them.

Regards,

Phil
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