Inherited IRAs and Status of the 10-year Rule

[phil1ben]

I know the IRS has flip-flopped on this. But as I understand it (as of today) the current status is that the beneficiary IS REQUIRED to take an ANNUAL RMD based upon his/her lif expectancy using the published tables and that all sums in the inherited IRA must be disbursed by the end of the tenth year from the date of the original holder's death.

Please confirm. Thanks as always.

[foxcreek9]

Sounds like it still is in the "proposed" stage

Commentors are already chiming in. Some say the IRS is just flat out wrong: “These rules are contrary to the statute, as well as prior final regulations.” Others are asking for relief: “If the current proposed regulations are enacted, at a minimum, a safe harbor exception should be included.”

https://www.forbes.com/sites/ashleae...h=566af3136ac3

[USGrant1962]

Yes, I was looking at that article before you posted and clicked through to the proposed rule. Comments are due May 25, hearing on June 15. Stay tuned, I guess

[donheff]

Not a good time to be sitting on an inherited IRA.

[RunningBum]

Quote:

Originally Posted by donheff Not a good time to be sitting on an inherited IRA.

Why is that?

I mean, it's not like you have a choice when someone dies and gives you that IRA. You could disclaim it, but you're almost certainly going to get more money out of it than taxes owed. Is there going to be a better time to have one? I hear no discussion of rescinding the 10 year window and going back to a full stretch IRA, and tax rates are more likely to get higher than lower. Should you withdraw it all now so that you aren't "sitting" on it? That likely costs you more than withdrawing it over 10 years.

[donheff]

Quote:

Originally Posted by donheff Not a good time to be sitting on an inherited IRA.

Quote:

Originally Posted by RunningBum Why is that?

It sounds like the proposed rule could potentially require you to partially liquidate the IRA over the ten year period during which you are currently not taking money out. We can assume that IRS would likely forgive penalties for failure to withdraw during this period of confusion but they could also require a catch up with significant tax consequences. This is a rule making implementing current law, not a proposed piece of legislation that would only effect future actions.

[ncbill]

IMHO it's going to be a whole lot easier to cheat under the new rules.

When I inherited my IRA I had to provide decedent's date of birth, their age at death, whether or not they had started taking RMDs, my date of birth (to stretch out over my life expectancy)

But the brokerage never asked for proof for any of the above I provided!

Under the new rules (I assume the wording in the statute will prevail over the IRS's novel interpretation) all you've gotta fake is year of death when moving it from brokerage to brokerage and your inherited IRA can become a stretch IRA as well.

[jebmke]

Quote:

Originally Posted by ncbill IMHO it's going to be a whole lot easier to cheat under the new rules. When I inherited my IRA I had to provide decedent's date of birth, their age at death, whether or not they had started taking RMDs, my date of birth (to stretch out over my life expectancy) But the brokerage never asked for proof for any of the above I provided! Under the new rules (I assume the wording in the statute will prevail over the IRS's novel interpretation) all you've gotta fake is year of death when moving it from brokerage to brokerage and your inherited IRA can become a stretch IRA as well.

Of course, if the IRS comes back later, you're on the hook for tax fraud.

[athena53]

Quote:

Originally Posted by donheff Not a good time to be sitting on an inherited IRA.

I am but I'm not concerned. Dad died in October of last year. I don't need the inheritance so had plans to give it away over 10 years (grandchildren's 529s, direct gifts to DS and DDIL, the rest to charity). Before the end of the year my share of the IRA had been moved to an Inherited IRA account at Fidelity and I withdrew 10% last year and again this year, each time moving the amount (minus withheld taxes) to my donor-advised fund. So, I'm OK anyway.

I did ask my brother the retired tax accountant about this. It's even more complicated. Here was his response (to me and the 3 other siblings who each get an equal share). Note the nasty little detail that RMDs are driven by the life expectancy of the oldest heir, thus increasing the distributions younger heirs must take.

Quote:

The IRS issued proposed regulations on the required distributions from an inherited IRA on Feb 24, 2022, about 5 or 6 weeks ago. I read the regulations and could see where they may require RMD's, but it still wasn't clear. I talked with someone at my old firm and she knew as much as I did and had not had more time to look due to tax season being in full swing. I finally called the IRS national office and talked to one of the people who drafted the proposed regs. Given they are proposed regs and they are taking comments on the regs, nothing is final. The lady I talked to was very helpful and confirmed the following: Under the current drafting of the proposed regs, we will be required to start taking RMD's this year based on the life expectancy of the oldest of the 5 of us. I guess that is you, Athena53. If I looked at the IRS table correctly, given Athena53 was 68 on Jan. 1, the tables say her life expectancy is 20.4, This means you take the balance in your account as of 12/31/2021 and divide it by 20.4 to get the 2022 RMD. Since these are proposed regs and they are getting a lot of comments on them, it is possible they will change. Given the uncertainty and just plain confusion around all of this, the person I talked with at the IRS said she expected there would be some sort of transitional relief for 2022. It would be a surprise if the final regs are even issued by 12/31/2022. If there is transitional relief, I would expect it means there would be no penalty for not taking a 2022 RMD. The bottom line for me is that I am going to wait at least until late Dec to decide if I'm going to take a distribution. I am hoping there will be more concrete guidance by then, but that may be wishful thinking. Sorry for all the confusion around this. It is really a mess.

[phil1ben]

Quote:

Originally Posted by athena53 I am but I'm not concerned. Dad died in October of last year. I don't need the inheritance so had plans to give it away over 10 years (grandchildren's 529s, direct gifts to DS and DDIL, the rest to charity). Before the end of the year my share of the IRA had been moved to an Inherited IRA account at Fidelity and I withdrew 10% last year and again this year, each time moving the amount (minus withheld taxes) to my donor-advised fund. So, I'm OK anyway. I did ask my bother the retired tax accountant about this. It's even more complicated. Here was his response (to me and the 3 other siblings who each get an equal share). Note the nasty little detail that RMDs are driven by the life expectancy of the oldest heir, thus increasing the distributions younger heirs must take.

Although there is no answer yet, this response was very helpful to me. Thank you.

[silvor]

Oh boy. I have an inherited Ira and figured it was only required to empty it in 10 years. I was going to do some each year, but still.

Ugh.

[ERD50]

I'm confused. Are these are proposed "changes to the changes"?

IOW, does any of this affect an IRA that was inherited before 2020?

DW inherited a small IRA from her Mother in 2019. I've taken larger than RMDs, just to drain it down before I have to take my RMDs, just to simplify our situation - one less account to deal with (mostly to simplify for our heirs).

But I want to keep her siblings informed, if it potentially affects them.

-ERD50

[tominboise]

Quote:

Originally Posted by ERD50 I'm confused. Are these are proposed "changes to the changes"? IOW, does any of this affect an IRA that was inherited before 2020? DW inherited a small IRA from her Mother in 2019. I've taken larger than RMDs, just to drain it down before I have to take my RMDs, just to simplify our situation - one less account to deal with (mostly to simplify for our heirs). But I want to keep her siblings informed, if it potentially affects them. -ERD50

I am wondering the same thing. My wife inherited a small IRA ($20k) in 2014. She has been taking an RMD every year but it's about the same value as when she started. I wonder if she'll have to take everything by 2024.

[FREE866]

Instead of starting a new thread I figured it would make sense to resurrect this one.



My 21 and 23 year old niece's father died a couple months ago and he left his 401K to them.


The way I understand it is they will have to open up inherited IRA accounts, not get taxed , but will be required to liquidate the the entire accounts in 10 years or any time they wish partially or fully within that time frame. Upon liquidating they will pay tax at their respective tax rates.



If anyone has information that conflicts with my understanding please let me know.
Thank you.

[silvor]

^^^ Yes. For now at least.

[FREE866]

Quote:

Originally Posted by silvor ^^^ Yes. For now at least.

Thanks Silvor.
Yeah, it seems there’s been changing rules on this in last few years.

[Graybeard]

Quote:

Originally Posted by FREE866 Instead of starting a new thread I figured it would make sense to resurrect this one. My 21 and 23 year old niece's father died a couple months ago and he left his 401K to them. The way I understand it is they will have to open up inherited IRA accounts, not get taxed , but will be required to liquidate the the entire accounts in 10 years or any time they wish partially or fully within that time frame. Upon liquidating they will pay tax at their respective tax rates. If anyone has information that conflicts with my understanding please let me know. Thank you.

From what you posted, yes you are correct. It is probably better from a tax perspective that they are so young and probably have very low or no incomes, 30 years from now that would probably be a huge tax bomb.

[badatmath]

I think it is still true that the if the person that died was taking RMDs they have to take that in the year of death regardless. Then they can wait 10 on the rest.

[CRLLS]

Quote:

Originally Posted by badatmath I think it is still true that the if the person that died was taking RMDs they have to take that in the year of death regardless. Then they can wait 10 on the rest.

That is if the deceased had not already taken their RMD for that year.

[Sunset]

Quote:

Originally Posted by badatmath I think it is still true that the if the person that died was taking RMDs they have to take that in the year of death regardless. Then they can wait 10 on the rest.

I'll bet that rule catches some folks off guard, and they don't do the RMD for the estate... and all the ensuing issues that causes.