Inherited IRA RMD

[livingalmostlarge]

Last year the IRS waived the penalty for not taking an RMD from an inherited IRA in July. However does this apply to people who inherited an IRA in 2022 and took RMDs in 2022, 2023. Then did not take 2024 or are they penalized since they knew and were taking? They are non-spouse but child inheriting so it has to already be emptied in 10 years.

 

[cathy63]

The official notice said: "Guidance for certain taxpayers who did not take a specified RMD. To the extent a taxpayer did not take a specified RMD (as defined in section IV.C of this notice), the IRS will not assert that an excise tax is due under § 4974."

There's nothing about whether an RMD was taken in the past or not. As far as I know, the RMD is required in 2025 though.

 

[explanade]

My mother passed away last year and I transferred my share of her IRA account last month.

So I played around with various Inherited IRA calculators, assuming that I have 10 years to withdraw all of it.

They're all coming up with like 4-4.5% of the total balance as RMD for this year, which would be my first year of withdrawal.

Obviously 4-5% withdrawal isn't going to withdraw the whole account value in 10 years. I even found one calculator on www.voya.com which will generate a table for 10 years of withdrawals.

It slowly increases the withdrawal so that by year 9, it's about 5.9% of the current balance. But in year 10, it is having me do a withdrawal of like 88% of the current balance.

It lets you select a rate of return so I assumed a relatively modest 3.5%. AA is about 60/40, all Fidelity funds.

Does this make sense, to have a huge withdrawal in one year, presumably by which time you're doing other RMDs as well as collecting Social Security?

It may make sense for people doing ROTH conversions to take smaller withdrawals now I guess. Otherwise, any ideas on the logic of this?

 

[N02L84ER]

RMD stands for Required Minimum Distribution. The calculators give you the minimum you are required to withdraw based on your age. We withdraw enough to levelize the income over the 10 years.

 

[SecondCor521]

My mother passed away last year and I transferred my share of her IRA account last month.

So I played around with various Inherited IRA calculators, assuming that I have 10 years to withdraw all of it.

They're all coming up with like 4-4.5% of the total balance as RMD for this year, which would be my first year of withdrawal.

Obviously 4-5% withdrawal isn't going to withdraw the whole account value in 10 years. I even found one calculator on www.voya.com which will generate a table for 10 years of withdrawals.

It slowly increases the withdrawal so that by year 9, it's about 5.9% of the current balance. But in year 10, it is having me do a withdrawal of like 88% of the current balance.

It lets you select a rate of return so I assumed a relatively modest 3.5%. AA is about 60/40, all Fidelity funds.

Does this make sense, to have a huge withdrawal in one year, presumably by which time you're doing other RMDs as well as collecting Social Security?

It may make sense for people doing ROTH conversions to take smaller withdrawals now I guess. Otherwise, any ideas on the logic of this?

You'd have to ask the people who wrote the calculators.

It doesn't make much sense to me though, unless you plan to be dead by the time year 10 rolls around. That's probably not most of the people who inherit IRAs.

My plan will be to start with after-tax leveled payments over 10 years using the following Excel formula:

-PMT(7%,10,$B$2,0,0)

Where $B$2 is the value of the IRA, and 7% is what I plan on for a real (after tax) rate of return. This results in a first year withdrawal of about 14% of the IRA.

For year 2, I'd reduce the 10 in the formula to 9, to reflect that there is one year less to distribute the remaining balance.

That's the first cut, anyway. If I had any significant tax changes planned in the 10 year period, like starting SS, I'd tweak it somehow. TBD.

 

[Dd852]

Market gains have been nice but do make withdrawing "enough" a bit tricky. My strategy is to have the 10th year be big anyway - basically a double hit - because that would bridge me nicely for a year to 73 when I'll need to start rmd-ing the 401K. It's a lovely problem to have, and thanks to my frugal parents who never spent what they could or should.