Join Early Retirement Today
Reply
 
Thread Tools Search this Thread Display Modes
Non-Spousal IRA
Old 03-15-2014, 07:16 AM   #1
Dryer sheet aficionado
 
Join Date: Nov 2008
Posts: 31
Non-Spousal IRA

I have inherited IRAs from both my late parents. Since I received inaccurate info from the mutual fund company after my Mom passed away I want to get advice on how to handle before I meet with them.

Do I need to take distributions immediately (am 68 this year)?
How many years can I spread the distributions over?
If I donít take full distributions can I make my adult kids beneficiaries if I die before depletion?

Anything else I should know (did google but questions NOT answered).

Iíll come back in a day or so.
__________________

__________________
marvholly is offline   Reply With Quote
Join the #1 Early Retirement and Financial Independence Forum Today - It's Totally Free!

Are you planning to be financially independent as early as possible so you can live life on your own terms? Discuss successful investing strategies, asset allocation models, tax strategies and other related topics in our online forum community. Our members range from young folks just starting their journey to financial independence, military retirees and even multimillionaires. No matter where you fit in you'll find that Early-Retirement.org is a great community to join. Best of all it's totally FREE!

You are currently viewing our boards as a guest so you have limited access to our community. Please take the time to register and you will gain a lot of great new features including; the ability to participate in discussions, network with our members, see fewer ads, upload photographs, create a retirement blog, send private messages and so much, much more!

Old 03-15-2014, 07:42 AM   #2
Thinks s/he gets paid by the post
bUU's Avatar
 
Join Date: Dec 2012
Location: Georgia
Posts: 1,909
I don't remember if I was required to take RMD in the year my mother died, but I do know that I have had to take RMDs every year after, and I was under 50. I'm not sure but I think the RMD is based on life expectancy of someone born the year my mother was born, not my life expectancy.

I know that my nieces and nephews are beneficiaries of that inherited IRA.
__________________

__________________
bUU is offline   Reply With Quote
Old 03-15-2014, 07:54 AM   #3
Thinks s/he gets paid by the post
MooreBonds's Avatar
 
Join Date: Aug 2004
Location: St. Louis
Posts: 2,091
Quote:
Originally Posted by marvholly View Post
I have inherited IRAs from both my late parents. Since I received inaccurate info from the mutual fund company after my Mom passed away I want to get advice on how to handle before I meet with them.

Do I need to take distributions immediately (am 68 this year)?
How many years can I spread the distributions over?
If I don’t take full distributions can I make my adult kids beneficiaries if I die before depletion?

Anything else I should know (did google but questions NOT answered).

I’ll come back in a day or so.
First step that applies is to verify if distributions were taken in the year of their death. If they didn't take their RMD in the year of their death, then their estate would need to do that. The estate would then simply add this income to the other various income they might have had (interest/dividends/capital gains) between their date of death and when the assets were distributed to the heirs.

Second step - realize that you can't combine IRAs if you are a non-spouse. So if you inherited your father's IRA and your mother's IRA, those must remain two separate Beneficiary IRA accounts until they are depleted.

If the IRAs have significant balances, then you could take out the minimum each year...but realize that you have inherited an IRA from each/a parent, and then there might still be assets left in it for your kids to inherit. Along with your own IRA that you might have. All of these accounts must be kept separate. While it's certainly possible to maintain them, it can start to become annoying if your kids have 2 or 3 inherited IRAs each, along with their own retirement accounts to manage. Unless there were $2MM in each IRA account, I'd just plan to draw it down and try to manage my taxable income so it doesn't jump me up into a significantly higher tax bracket.

Third step - realize that a Beneficiary/Inherited IRA will end up forcing you to draw it down MUCH faster than your own IRA.

In the IRS regulations, it states that a non-spouse beneficiary must DECREASE the divisor of the first-year RMD when you inherit the IRA.

Example: let's say you were age 67 on December 31 of the year you inherited the IRA. Using Single Life Expectancy, Table I
Publication 590 (2013), Individual Retirement Arrangements (IRAs)

It says to use a divisor of 19.4 That means you take the balance of the account on December 31 of the prior year and divide it by 19.4 for your RMD.

HOWEVER, for each and every subsequent year, you decrease whatever your Beneficiary IRA first year divisor is by 1; you do NOT use that year's age divisor.

So for the following December 31:
Age 68 divisor is 18.4
Age 69 divisor is 17.4
Age 70 divisor is 16.4, etc.

As you can see, the beneficiary IRA divisor will quickly grow much larger than a regular IRA RMD, and will result in the IRA balance drawing down much more quickly than if it were your own IRA. Purely from this fact, if you enjoy a long life, it's unlikely that your kids will inherit your parents' IRAs...unless you're an investing powerhouse and enjoy 12% returns each year from the accounts.
__________________
Dryer sheets Schmyer sheets
MooreBonds is offline   Reply With Quote
Non-Spousal IRA
Old 03-15-2014, 09:19 AM   #4
Recycles dryer sheets
 
Join Date: Mar 2010
Location: Rural
Posts: 120
Non-Spousal IRA

My husband had an inherited IRA from his mom. We were taking RMDs but decided this year to just take the remainder out (it's fairly small) and manage our taxes by setting more aside in tax deferred accounts.

Why does the gubment need to make this so complicated?
__________________
dontworry is offline   Reply With Quote
Old 03-15-2014, 10:33 AM   #5
Thinks s/he gets paid by the post
bUU's Avatar
 
Join Date: Dec 2012
Location: Georgia
Posts: 1,909
It would be much simpler I suppose if they simply required those inheriting IRAs to pay the tax on the tax-advantaged balance immediately upon inheritance, as current year income, and then let the beneficiary do with the remainder as they see fit. So effectively this is complicated to provide a means for beneficiaries to be able to defer paying taxes on the tax-advantaged balances they inherit. The complication benefits the beneficiaries, not the government.
__________________
bUU is offline   Reply With Quote
Old 03-15-2014, 10:55 AM   #6
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
pb4uski's Avatar
 
Join Date: Nov 2010
Location: Vermont & Sarasota, FL
Posts: 16,393
+1 and any beneficiary can chose to avoid the complication and withdraw it when they receive it and pay the taxes on it.
__________________
If something cannot endure laughter.... it cannot endure.
Patience is the art of concealing your impatience.
Slow and steady wins the race.
pb4uski is offline   Reply With Quote
Old 03-15-2014, 10:55 AM   #7
Thinks s/he gets paid by the post
 
Join Date: Nov 2011
Posts: 2,357
You can spread the distribution over your life. If at your death any funds remain for your children, the RMDs continue at the same pace they would have had you not died.
__________________
GrayHare is online now   Reply With Quote
Old 03-15-2014, 11:49 AM   #8
Thinks s/he gets paid by the post
 
Join Date: Nov 2009
Posts: 3,859
My friend, 50 years old, inherited an IRA from his remaining parent (his mom) died back in August, 2012. His mom had not taken her RMD yet so when her portfolio was split between him and his sister, the executor did the RMD and split it between the two, with each receiving a 1099-R form with some income taxes withheld (their choice).

To determine future RMDs, the divisor goes down by one each year as posted by Moorebonds. The starting value of the divisor is based on my friend's life expectancy. My friend doesn't need the RMD for his everyday expenses so he has nearly all of it withheld via 1099-R for income taxes. He has a lot of investment income (from an inherited brokerage account) now so the RMD pays some of the taxes to help keep in a "safe harbor" for withholding purposes.

The IRA grew in 2013 so despite the divisor decreasing by one (it is in the low 30s somewhere) his RMD will barely increase for 2014. We do not expect this pattern to continue every year as the divisor decreases at an increasing rate percentagewise.
__________________
Retired in late 2008 at age 45. Cashed in company stock, bought a lot of shares in a big bond fund and am living nicely off its dividends. IRA, SS, and a pension await me at age 60 and later. No kids, no debts.

"I want my money working for me instead of me working for my money!"
scrabbler1 is online now   Reply With Quote
Old 03-15-2014, 12:13 PM   #9
Recycles dryer sheets
lemming's Avatar
 
Join Date: May 2008
Posts: 415
It would be pretty painful to take $500,000 in income in one year just to simplify the complication.
Grayhare read Moorbonds explanation above or read this from Fidelity
https://www.fidelity.com/viewpoints/...non-spouse-IRA
__________________
lemming is offline   Reply With Quote
Old 03-17-2014, 02:41 AM   #10
Dryer sheet aficionado
 
Join Date: Nov 2008
Posts: 31
Thanks everyone. i wanted to be prepared when I meet w/the mutual fund people. Previous advice given was at least partly incorrect giving rise to current complications.
__________________

__________________
marvholly is offline   Reply With Quote
Reply


Currently Active Users Viewing This Thread: 1 (0 members and 1 guests)
 
Thread Tools Search this Thread
Search this Thread:

Advanced Search
Display Modes

Posting Rules
You may not post new threads
You may not post replies
You may not post attachments
You may not edit your posts

BB code is On
Smilies are On
[IMG] code is On
HTML code is Off
Trackbacks are Off
Pingbacks are Off
Refbacks are Off


Similar Threads
Thread Thread Starter Forum Replies Last Post
Spousal IRA clarification needed...... FreeAsTheBreeze FIRE and Money 17 09-05-2015 03:23 PM
TSP non-spousal beneficiary twist timo2 FIRE and Money 2 06-07-2013 12:20 PM
Jointly Owned Non-spousal inherited IRA WilliamG FIRE and Money 24 03-24-2013 04:49 PM
401k Plan and Spousal IRA Question ShokWaveRider FIRE and Money 6 10-28-2005 09:10 AM
Non-spousal joint tenancy of stock account? soupcxan Other topics 5 03-30-2005 08:54 AM

 

 
All times are GMT -6. The time now is 01:14 PM.
 
Powered by vBulletin® Version 3.8.8 Beta 1
Copyright ©2000 - 2017, vBulletin Solutions, Inc.