October 1, 2023

Changes to Inherited IRA’s

Recap of changes to Inherited IRA’s

There are several important tax considerations involving RMD’s (required minimum distributions) that every IRA beneficiary and any other retirement account holder should know, that came out of the SECURE 2.0 ACT.

  1. The minimum age for RMD’s was raised to age 73.
  2. No more “stretch IRA” strategy for many beneficiaries.

A “10 year rule” now applies to many beneficiaries of inherited IRA’s.

  • That means most beneficiaries can no longer stretch distributions over their lifetimes. Non-spouse beneficiaries who inherited IRA’s after January 1, 2020, must empty the account within 10 years of the account owners death.
  • Inherited IRA’s are generally subjected to RMD’s, but rules vary when the beneficiary qualifies as an “eligible designated beneficiary”. (e.g., surviving spouses, minor children, disabled individuals, and individuals who are chronically ill).    

Also, the IRS recently delayed the final rules governing inherited IRA RMD’s to 2024, which means that beneficiaries of inherited IRA’s have more time to adapt to distribution requirements.

The IRS will waive penalties for RMD’s missed in 2023 from inherited IRA’s in 2022, where the deceased owner was already subject to RMD’s.

With inherited IRA’s, the type of account and specifics involving the account holder and the beneficiary matter when determining tax liability and strategy. If you’ve inherited an IRA, knowing these details can help you plan for distributions’ tax consequences and choose the best strategy for your situation.

Consult a qualified tax advisor or financial planner to navigate the specific inherited IRA rules and tax implications.