Demystifying Inherited IRAs: What You Need To Know
Over the past few years, several rules have changed in relation to inherited IRAs – including the SECURE Act’s elimination of the option to “stretch” distributions over a lifetime for most beneficiaries. In July, the IRS released their most recent guidance on distributions from inherited IRAs, and confirmed that many beneficiaries must empty their inherited IRA account within ten years of the decedent’s death – and in some cases, take taxable minimum distributions for the first nine years.
If you’re the beneficiary of an IRA, now is the time to plan how you’re going to liquidate the account. And if you’re planning on leaving an IRA to an heir, it’s a great idea to meet proactively with your advisor to ensure your beneficiaries get the most out of their inheritance.
If You’re Inheriting an IRA
If you’re a beneficiary, standing on the right side of the IRS starts with understanding how these new rules apply to you:
As the primary beneficiary of the IRA, are you any of the following?
- A surviving spouse
- A person with a disability or chronic ilness
- A minor child of the decedent
- Less than 10 years younger than the decedent
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Yes ▼The new 10-year rule does not apply to you - you can still utilize the stretch benefit.
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No ▼See next question.
Did you inherit the IRA in 2019 or earlier?
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Yes ▼The new 10-year rule does not apply to you - you can still utilize the stretch benefit.
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No ▼The new ten-year rule applies to you. See next question for more details.
Did you inherit the IRA from someone already subject to taking RMDs?
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Yes ▼The IRS requires you to take RMDs for the next nine years and fully deplete the account at the end of the tenth year.
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No ▼You're not subject to RMDs, but still need to empty the account by the end of the tenth year.
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