Inherited Traditional IRA [withdrawal requirements]

Have a question about your personal investments? No matter how simple or complex, you can ask it here.
Post Reply
Topic Author
chrisjul
Posts: 271
Joined: Sun Jan 06, 2008 3:15 pm

Inherited Traditional IRA [withdrawal requirements]

Post by chrisjul »

Am I required to completely withdraw the entire IRA balance within 10 years?
Silk McCue
Posts: 7651
Joined: Thu Feb 25, 2016 7:11 pm

Re: Inherited Traditional IRA

Post by Silk McCue »

We can’t answer that because you haven’t provided the necessary specific information about your situation.

Please read this Wiki to see what rules apply to your situation.

https://www.bogleheads.org/wiki/Inheriting_an_IRA

Cheers
gavinsiu
Posts: 1701
Joined: Sun Nov 14, 2021 12:42 pm

Re: Inherited Traditional IRA [withdrawal requirements]

Post by gavinsiu »

First, my condolences. The topic of inherited ira is quite difficult to answer. Can you provide some info.

* Was the deceased old enough to take RMD?
* What was your relationship to the deceased. There are difference rules for spouse and non-spouse.
* Are you named as a beneficiary of the IRA?
* Do you have any idea what beneficiary designation you are?
* Are you old enough to take RMD?
Topic Author
chrisjul
Posts: 271
Joined: Sun Jan 06, 2008 3:15 pm

Re: Inherited Traditional IRA [withdrawal requirements]

Post by chrisjul »

gavinsiu wrote: Thu Jan 19, 2023 11:00 pm First, my condolences. The topic of inherited ira is quite difficult to answer. Can you provide some info.

* Was the deceased old enough to take RMD?
* What was your relationship to the deceased. There are difference rules for spouse and non-spouse.
* Are you named as a beneficiary of the IRA?
* Do you have any idea what beneficiary designation you are?
* Are you old enough to take RMD?
Yes, he was old enough for RMD

I am the son. Non spousal.

I was named as beneficiary along with my brother

I am old enough to take RMD. I have been taking my RMD, based on my age.

My confusion is whether I have to take the Full IRA before 5 years, 10 years or continue to take annual RMD's
Navillus1968
Posts: 194
Joined: Mon Feb 22, 2021 6:00 pm

Re: Inherited Traditional IRA [withdrawal requirements]

Post by Navillus1968 »

chrisjul wrote: Tue Jan 24, 2023 12:59 pm
gavinsiu wrote: Thu Jan 19, 2023 11:00 pm First, my condolences. The topic of inherited ira is quite difficult to answer. Can you provide some info.

* Was the deceased old enough to take RMD?
* What was your relationship to the deceased. There are difference rules for spouse and non-spouse.
* Are you named as a beneficiary of the IRA?
* Do you have any idea what beneficiary designation you are?
* Are you old enough to take RMD?
Yes, he was old enough for RMD
Sorry for your loss.
Inherited IRAs have fairly complex rules, here's a stab at how they work in your case.

If dad was taking RMDs, you & your brother must continue RMDs. Note: in addition to RMDs, you must also abide by the 10-year rule. The inherited IRA must be liquidated by tenth year after the year in which the account holder died.
If your dad died in 2023, Year 1 for you is 2024.
If your dad died in 2022, Year 1 for you is 2023.
Essentially, the time frame is the 0-11 months remaining in year of death, plus 10 years,.

Note: You & your brother are not required to take a RMD in the year of your dad's death, but your dad is required to do so. If he died in 2022 & the RMD was not done by 31 DEC, 2022, the RMD is late & you should take the RMD ASAP. Normally, IRS has a steep (50%) penalty for not taking RMDs, but they will waive the penalty if there's good reason, which you definitely have. See: https://www.irahelp.com/slottreport/aut ... -death-rmd
Note: the SECURE Act 2.0 reduces missed RMD penalties, but you will get a waiver, if one is needed.

I am the son. Non spousal.

I was named as beneficiary along with my brother
Since you & your brother are both beneficiaries, separate inherited IRA accounts must be established by 12/31 of the year following the year of death; otherwise, distributions will be based on the oldest beneficiary.
If you two are close in age, it may not matter much, but you should set up two inherited IRAs by the deadline to avoid having the elder brother's birth year drive the RMDs for both.
I am old enough to take RMD. I have been taking my RMD, based on my age.

My confusion is whether I have to take the Full IRA before 5 years, 10 years or continue to take annual RMD's
Basically two rules apply in your case: 1. Take RMDs, & 2. Empty the IRA by 31 DEC of Year 10 (2033, if dad passed in 2023).
Note: Taking just RMDs for 9 years will very likely leave you a large "balloon payment" to close the IRA in Year 10. This will cause a spike in your taxes owed, possibly pushing you into a higher tax bracket that year.
On average, you will pay less tax overall if you take out 1/10th of the account in Year 1, 1/9th in year 2, & so on until the 10th year when you take it all out & close the IRA.
If you have any years with lower income, then you can withdraw more money in those years without triggering extra taxes.

One final point- inherited IRAs use a different life expectancy table than IRAs that you are the owner of. Don't make the mistake of using the same table for both.
See:
Inherited IRA: https://www.irahelp.com/printable/2022- ... ancy-table
vs
Your own IRA (spouse beneficiary <10 years younger): https://www.irahelp.com/printable/2022- ... time-table

Edited to add: The above assumes you are NOT an Eligible Designated Beneficiary (EDB). At your age, as the son of the IRA owner, the only way to get EDB designation is to be chronically ill or permanently disabled. If you or your brother fit either one of these categories, the rules are different.
gavinsiu
Posts: 1701
Joined: Sun Nov 14, 2021 12:42 pm

Re: Inherited Traditional IRA [withdrawal requirements]

Post by gavinsiu »

chrisjul wrote: Tue Jan 24, 2023 12:59 pm Yes, he was old enough for RMD

I am the son. Non spousal.

I was named as beneficiary along with my brother

I am old enough to take RMD. I have been taking my RMD, based on my age.

My confusion is whether I have to take the Full IRA before 5 years, 10 years or continue to take annual RMD's
Just to parrot Navillus1968's response
* You are a designated beneficiary, but not an eligible designated beneficiary.
* Because your father was old enough to RMD. If your father didn't take RMD in the year of his death, the executor should a final RMD. If you failed to do so, take a look at IRS publiciation for Form 5329 to file for a waiver. I am not a tax expert but many tax expert on board indicate that IRS often waive penalty for good reasons.
* You are required to empty out the IRS by the end of the 10th year.
Post Reply