Originally Posted by marvholly
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.