Planning tool for inherited IRA?

[BOBOT]

DW has an inherited IRA, & we're trying to figure how to comply with and implement the 10 year rule for liquidating it. Many unknowns, of course, including future returns, tax rates, etc., others we haven't thought of.

A spreadsheet sort of analysis tool would help; any out there?
Thanks.

 

[SevenUp]

Do either of the spreadsheets mentioned in Roth IRA conversion - Bogleheads help?

Of course, these won't be conversions for her but the general principles of calculating taxes for various withdrawal amounts may still apply.

 

[RetiredHappy]

You can make use of the last 10 years of the IRA RMD table, I think age 110 to 120 or something like that, to help you decide how much to withdraw for each of the 10 years.

 

[RetireeRobert]

Inherited IRAs for non spouses do have the ten year withdrawal requirement but there are no specified RMD's for each year. So, she can take it all out year one, or all year ten, or just about any combination that fits her specific needs and or wants.

In order not to have a possibly huge tax hit in any one year, maybe she would want to let the account ride for the first five years with no withdrawals. Then take withdrawals in years six through ten to even out the tax hit. This sort of strategy would take advantage of much tax-deferred growth before the account starts getting depleted. And it also keeps the tax hit from hitting all in one year at possibly greater tax rates due soley to size of WD all in one year.

Maybe you want to sit down and model how to minimize tax hit while also allowing some years of continued tax deferral before depleting starts.

 

[Exchme]

If you are good at spreadsheets, you could try something like the Retiree Portfolio Model available at the Bogleheads.org Wiki. In the model, call the inherited IRA as IRA 1 and not an inherited IRA, if you call it IRA 1, you have more flexibilty on withdrawals. Then set up Roth conversions and Roth withdrawals over the 10 year withdrawal period (which come from IRA 1). Make conversions and withdrawals the same in any given year and it nets out to pulling the money out of the IRA and putting it in taxable. Then try different withdrawal strategies.

But a warning - it's a very complex and thorough tool so it takes time to learn and get your inputs set up in a reasonable fashion. Since the goal here is to maximize future wealth primarily by minimizing taxes, you will need to put in quite a bit of detail so it can reasonably estimate taxes. You have to be patient to learn the tool, I still find I have to scroll through the entire input to find what I'm looking for.

 

[Bruno]

Must Inherited IRAs for non spouses start the year they die?

 

[Sunset]

How fast to withdraw the money , depends a lot on other income as the withdrawal will add to the other income.

If a future drop in income is expected (ie retirement), then it can be planned to make larger withdrawals during that time.

If the income over the next 10 years is pretty constant, then making the withdrawals even is best. Obviously 10% is too low as the money will hopefully grow.

Here is a calculator to figure out exactly how much to withdraw in the even amount case , so OP can play with the inputs :
https://www.bankrate.com/calculators/savings/savings-withdrawal-calculator-tool.aspx

With a average 6% growth rate, and withdrawals of 12.9% the account is $0 after 10 years. Naturally at any point based on actual growth the withdrawal could be adjusted.

 

[SecondCor521]

Must Inherited IRAs for non spouses start the year they die?

Nope. It is the year after death.

In the year of death, the original owner (or their beneficiaries) must take their full and final RMD, if applicable.

 

[MuirWannabe]

Nope. It is the year after death.



In the year of death, the original owner (or their beneficiaries) must take their full and final RMD, if applicable.

This raises a question I’ve got right now. I’m finally about to have an inherited IRA placed into a new account for me. Raymond James has been dragging their feet. But it should actually happen this next week.

But it’s complicated. The dad died in May. The mom died in June. Neither took their RMD for 2021. Since technically, mom inherited dads IRA even before she passed three weeks later, RJ has decided to combine their IRA’s into one inherited IRA from mom.

So, it raises a few questions.

1. How long do I have to take their 2021 RMD’s?I don’t even gave the money quite yet.
2. Do I take two RMD’s? One based on dads age and one on moms? I’m guessing that’s not correct since the IRA’s have been combined. However, if not, that means technically dad did not have an RMD taken in 2021.
3. Do I take one RMD of the entire combined amount based upon moms age?

Raymond James is no help. They are struggling just getting my inherited account established and the money transferred. I think they just discovered this thing called the SECURE act and it’s got them all flustered lol.

 

[disneysteve]

The dad died in May. The mom died in June. Neither took their RMD for 2021. Since technically, mom inherited dads IRA even before she passed three weeks later, RJ has decided to combine their IRA’s into one inherited IRA from mom.

So, it raises a few questions.

2. Do I take two RMD’s? One based on dads age and one on moms?

I am NOT a tax professional. This is probably a convoluted enough story to involve one to make sure it gets done properly and doesn't come back to bite you later.



That said, you aren't inheriting dad's IRA. Your mom inherited that. It was her responsibility to take his 2021 RMD.


You are inheriting mom's IRA. It is your responsibility to take her 2021 RMD.


At least that's how I would interpret this situation.