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Inherited IRA RMDs-Secure Act 2.0 and the IRS
Old 11-10-2023, 11:59 AM   #1
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Inherited IRA RMDs-Secure Act 2.0 and the IRS

DMIL passed in Aug 2021. DW inherited a portion of DMIL's IRA later that year, shared equally among 4 siblings. Since DMIL had already taken her 2021 RMD, there was nothing for DW to do for tax year 2021. For tax year 2022, whether RMDs on inherited IRAs were required or not were not settled due to the Secure Act 2.0 being signed into law Dec 2022 and effective on Jan 1,2023. Some believed that the 10 year rule simply required the total amount to be withdrawn before 10 years were up. At least, that is what we were told. Right or wrong, we did not make any withdrawals from her inherited IRA in year 2022.

Fast forward another year and it appears that now the dust has settled and , DW was/is subject to RMDs. However, according to IRS Notice 2023-54 issued mid-year, penalties for failure of taking RMDs are not being enforced until tax year 2024. Regardless, I think I know that the inherited IRA has to be completely withdrawn by the end of Dec of the 10th year following the passing of DMIL. The inherited RMD rules and the penalties thereof are very confusing from the 10,000ft level and even more so from the 1ft level (i.e. the IRS guidelines).

My question is, do we need to take withdrawals for both 2022 and 2023 before the end of this year so when year 2024 comes around, there will be no penalties? Maybe I could let this year pass and make RMDs in 2024 for 2024 or for 2022-2024? The IRS is not quite clear on making up back RMDs. Or possibly just close out the entire iIRA account and be done with it? it is currently mid five digits in value. How do I move forward to stay kosher with the IRS? What say the combined knowledge of the ER.org?
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Old 11-10-2023, 12:16 PM   #2
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Very similar situation to yours - I'm just as confused. To make matters worse, I don't think inherited IRA withdrawals can be converted to Roth. Ours is low six digits. But, like you thinking will just kill it off relatively early once we get into our lower tax-rate, non-earning years just to simplify matters.
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Old 11-10-2023, 12:44 PM   #3
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I'm in a similar situation. I believe RMDs are mandated, but the IRS appears to have waived withdrawals until the 2024 tax year. I decided I didn't want to end up with large withdrawals towards the 10 year mark (which would be when I was taking RMDs from my rollover IRAs) so I withdrew at least 10% in 2022 and 2023 which is significantly more than would be required using the Single Life Expectancy (SLE) table at the back of IRS Pub 590-B.
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Old 11-10-2023, 12:44 PM   #4
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Very similar situation to yours - I'm just as confused. To make matters worse, I don't think inherited IRA withdrawals can be converted to Roth. Ours is low six digits. But, like you thinking will just kill it off relatively early once we get into our lower tax-rate, non-earning years just to simplify matters.
And here I thought it was just me that was confused.

As you say, Inherited IRAs cannot be converted to a Roth.
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Old 11-10-2023, 12:46 PM   #5
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In the past, I have found articles on the Kitces website to have accurate interpretations and explanations of IRS rulings. Here's their take on this one: https://www.kitces.com/blog/irs-noti...ies-2023-2024/

Quote:
Specifically, the Notice, once again, provides relief for Non-Eligible Designated Beneficiaries who inherited from someone dying on or after their Required Beginning Date by eliminating any penalties for failing to take (potential) RMDs for 2023.
I read this to mean that you can continue to wait and see, but you might eventually have to take the RMDs for 2022 and 2023. They would be taxed as income in the year you take them, though you would not be subject to the 25% or 10% penalty for not having taken them in the prior years.

Regardless of whether there are RMDs for each year, the 10-year rule still applies and the account must be emptied by Dec 31 of the tenth year after death.
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Old 11-10-2023, 12:59 PM   #6
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I'm thinking most people would be well served by taking out 10-12% of an inherited tIRA each year until it is depleted in year 10.

If you have high confidence that your Ordinary Income will change significantly at some point during those ten years, then change your withdrawal plan appropriately...
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Old 11-10-2023, 01:09 PM   #7
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Yup been watching this one too. I even read a few fearful articles saying to be safe one should use a 10-year life for your RMD calculation....uh ha ha no thanks and definitely not even implied in the current verbiage. I have been skipping and took my first one this year, just because I don't want to get hit too bad down the road ......because the one thing everyone has agreed on is that that the 10-year road marker is coming regardless of how much you took before that.
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Old 11-10-2023, 01:11 PM   #8
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Yup been watching this one too. I even read a few fearful articles saying to be safe one should use a 10-year life for your RMD calculation....uh ha ha no thanks and definitely not even implied in the current verbiage. I have been skipping and took my first one this year, just because I don't want to get hit too bad down the road ......because the one thing everyone has agreed on is that that the 10-year road marker is coming regardless of how much you took before that.
It's not clear what your point is...
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Old 11-10-2023, 01:18 PM   #9
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Yup been watching this one too. I even read a few fearful articles saying to be safe one should use a 10-year life for your RMD calculation....uh ha ha no thanks and definitely not even implied in the current verbiage. I have been skipping and took my first one this year, just because I don't want to get hit too bad down the road ......because the one thing everyone has agreed on is that that the 10-year road marker is coming regardless of how much you took before that.
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It's not clear what your point is...
+1, extremely unclear
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Old 11-10-2023, 02:52 PM   #10
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Yup been watching this one too. I even read a few fearful articles saying to be safe one should use a 10-year life for your RMD calculation....uh ha ha no thanks and definitely not even implied in the current verbiage. I have been skipping and took my first one this year, just because I don't want to get hit too bad down the road ......because the one thing everyone has agreed on is that that the 10-year road marker is coming regardless of how much you took before that.
So how many years have you skipped? Do you "catch up", meaning withdraw all the previous year's RMD's plus this year's?

I'm not certain of how to calculate each year's "RMD" on an inherited IRA. Do you use the beneficiary's age, or what until year 10 when it has to be any remaining in the account?

One thing I am concerned about is when they, meaning our congress critters, decide to change the rules in the next year or 2 or 3. This year seems to be the year to see how it goes and make adjustments as needed (or desired) in the future. I guess nothing stands as it originally was written and we have to plan according to how it is today.
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Old 11-10-2023, 03:23 PM   #11
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As I understand it currently it is based on beneficiary age but still only have 10 years. Which means you are taking out very little than large sum at the end. . . which is basically not what most people want to do.
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Old 11-10-2023, 03:59 PM   #12
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If the beneficiary is NOT the spouse the inherited IRA needs to be depleted by the end of the 10th year after the original owners death. You could not do any RMDs until that final year, but doing so would most likely result in large tax payment. Spreading out the withdrawals over 10 years is more advisable from that standpoint.
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Old 11-10-2023, 04:00 PM   #13
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Sorry for any confusion.....a few articles had basically been advising to use 10-year equal or 10-year beneficiary life RMD ......but I think those are super conservative outliers and won't be required...........so I used my calculated RMD based on my (beneficiary) life and just took the minimum this year (I didn't take anything previously even though in the 10-year period). Didn't include any catch-up amount, haven't seen any indicator that is required.

Yes - using my beneficiary RMD (I am relatively young), my number is low so results in minimal required distributions....which will mean an unpleasantly large year-10 final withdrawal (taxes) if not managed in the upcoming years.

Followed the instructions in the table to find my life expectancy (used to divide balance and determine your RMD):
https://www.federalregister.gov/docu...g-minimum#p-73
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Old 11-10-2023, 04:00 PM   #14
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If the beneficiary is NOT the spouse the inherited IRA needs to be depleted by the end of the 10th year after the original owners death. You could not do any RMDs until that final year, but doing so would most likely result in large tax payment. Spreading out the withdrawals over 10 years is more advisable from that standpoint.
It’s not just spouses. If the heir is less than 10 years younger they get to use the old rules and are not subject to the 10 year drawdown requirement.
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Old 11-10-2023, 04:04 PM   #15
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It’s not just spouses. If the heir is less than 10 years younger they get to use the old rules and are not subject to the 10 year drawdown requirement.

Right, I didn't mention that as the OPs example this wouldn't apply.
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Old 11-10-2023, 04:28 PM   #16
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It’s not just spouses. If the heir is less than 10 years younger they get to use the old rules and are not subject to the 10 year drawdown requirement.
This is a biggie for those of us who want to leave our IRAs to siblings who are only a bit (<10 yrs) younger than us.

From my reading, I believe the IRS considers these folks "Designated Eligible Beneficiaries", and they (if < 10 yrs younger) can RMD out of an Inherited IRA on THEIR RMD schedule. Although there are also caveats as to when YOU die and whether you are in RMDs (and have taken them already) also.

The rules are complex. And if we here at ER have to struggle with the many if-then permutations, imagine what the average person who is not as financially literate as many here are faced with..
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Old 11-10-2023, 04:57 PM   #17
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So how many years have you skipped? Do you "catch up", meaning withdraw all the previous year's RMD's plus this year's?

I'm not certain of how to calculate each year's "RMD" on an inherited IRA. Do you use the beneficiary's age, or what until year 10 when it has to be any remaining in the account?

One thing I am concerned about is when they, meaning our congress critters, decide to change the rules in the next year or 2 or 3. This year seems to be the year to see how it goes and make adjustments as needed (or desired) in the future. I guess nothing stands as it originally was written and we have to plan according to how it is today.
To calculate an RMD on an inherited IRA, where:
1) you are not an eligible beneficiary
2) the original owner had reached their RMD age
3) you are more than 10 years younger than the original owner

For the year after the year of of the original owner's death, you use Table 1 in the appendix of Pub 590-B using your own age as of the end of that year as the lookup factor to get your life expectancy. (You will have had at least 1 and possibly 2 birthdays after the original owner's death.) Then you divide the IRA balance from December 31 of the prior year by your life expectancy.

For each subsequent year, you subtract 1 from the original life expectancy and divide the EOY IRA balance by that new number. The lookup table is only used for the first year.

If the final IRS rules for inherited IRAs require you to have taken RMDs and you haven't done so, then at that point you will have to do a catch-up and take multiple years of RMDs at once. I am not sure about this and can't find it via Google right now, but I think you have to calculate all the withdrawals based on the final year's balance and there is no reduction for multiple RMDs. So if they decide you were supposed to take RMDs for 2021, 2022 and 2023 and you take those plus the 2024 RMD next year, then you would calculate each of the four RMDs separately based on the Dec 31 2023 balance. (This is different than if you don't take an RMD from a 401k or other employer account.)
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Old 11-10-2023, 04:59 PM   #18
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As I understand it currently it is based on beneficiary age but still only have 10 years. Which means you are taking out very little than large sum at the end. . . which is basically not what most people want to do.
Yes, if you only take the RMD in the first 9 years, then this is true. But the M is for Minimum, so you can always take more than that amount.
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Old 11-10-2023, 05:12 PM   #19
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Yes, if you only take the RMD in the first 9 years, then this is true. But the M is for Minimum, so you can always take more than that amount.

Ironically in the case of inherited IRAs by non spouses the word " minimum"doesnt really apply. You can take out as little or as much as you want--the account just has to be depleted after 10 years.
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Old 11-10-2023, 05:25 PM   #20
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Ironically in the case of inherited IRAs by non spouses the word " minimum"doesnt really apply. You can take out as little or as much as you want--the account just has to be depleted after 10 years.
The IRS ruling that we're discussing in this thread spells out the case where an heir has to both take the RMD and follow the 10-year rule; so yes in OP's case and for a few others who've chimed in, the word "minimum" does indeed apply.

The recent ruling waives the penalties for missing these specific RMDs until at least the 2024 year, but that doesn't mean people who are in this situation will not have to take the RMDs at some point, just that they won't be penalized for not having taken them on time.
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