Questions about inheriting IRAs

[disneysteve]

Sometime this year I will inherit a tIRA and a Roth IRA from a relative. I know the rules changed a couple of years ago. They eliminated the provision that let you stretch withdrawals over your lifetime and changed it to a 10-year period. But I believe one of the exceptions is if the deceased was less than 10 years older than you, in which case you can stretch payments over your life expectancy. Is that correct, because that will apply here?



Logistically, what happens when the person dies? It sounds like I need to transfer the money into an inherited IRA. What about the inherited Roth? Will it remain tax-free money for me? Is there an Inherited Roth that I'll transfer it to?


So many questions and things to figure out.

 

[Souschef]

It is explained here





https://www.fidelity.com/learning-center/personal-finance/retirement/non-spouse-IRA

 

[cathy63]

Yes, if the deceased is less than 10 years older than you, then you can still stretch the IRA withdrawals over your lifetime.

You will have both an inherited IRA and an inherited Roth, and they will need to be titled correctly (the custodian should know how to do this). I believe the money needs to be moved as a trustee-to-trustee rollover where you don't touch it yourself.

You will need to take RMDs from both the IRA and Roth IRA starting next year. This calculation is slightly different than if it were your own IRA, but the custodian should be able to tell you how much it is. If the money has been in the Roth for at least 5 years, then that withdrawal will be tax free.

 

[disneysteve]

Thank you both.

 

[SecondCor521]

If you're inheriting via beneficiary designation or POD/TOD, you can make a request of the custodian for the original owner's IRAs with a copy of the death certificate, and they will transfer your portion into your inherited IRAs.

If you're inheriting via a will or intestacy laws, then an executor should be appointed and they will need to take care of distributing the IRAs to inherited IRAs for you and any other heirs.

Same result, slightly different process to get there.

...

Also, it sounds like the person hasn't passed away yet but you expect them to this year? If that's the case, and they are of RMD age, their 2021 RMD will be their last one but it still must be taken fully by some combination of them and any heirs by 12/31/2021. Then in 2022 you and any other heirs would start your own RMDs based on your own account balances and life expectancies.

Do note that if you are entitled to take RMDs, there are time frames by which the distribution of the IRA to the heirs must take place (9 months after death, I think?). And as @cathy63 points out, the inherited IRAs must be titled properly.

 

[disneysteve]

Also, it sounds like the person hasn't passed away yet but you expect them to this year? If that's the case, and they are of RMD age, their 2021 RMD will be their last one but it still must be taken fully by some combination of them and any heirs by 12/31/2021. Then in 2022 you and any other heirs would start your own RMDs

Great point. I believe he takes his RMD as a monthly draw. I'll have to make sure that his entire 2021 RMD is paid out even after his death.


So if he dies in April, for example, the 2021 RMD will still be based on HIS numbers, not mine, correct?

 

[SecondCor521]

Great point. I believe he takes his RMD as a monthly draw. I'll have to make sure that his entire 2021 RMD is paid out even after his death.


So if he dies in April, for example, the 2021 RMD will still be based on HIS numbers, not mine, correct?

Correct. It'll be his 12/31/2020 balance divided by his divisor in the IRS RMD table based on his age on his 2021 birthday (regardless of whether he actually lives to his birthday or not).

 

[disneysteve]

Correct. It'll be his 12/31/2020 balance divided by his divisor in the IRS RMD table based on his age on his 2021 birthday (regardless of whether he actually lives to his birthday or not).

Thanks. That's very helpful - and important not to screw up.