Tax Tip #166
Inherited IRA
A 10 year rule now applies to many beneficiaries of inherited IRAs. Most non-spouse beneficiaries who inherited IRAs on or after Jan. 1, 2020, must empty the account within 10 years of the account owner’s death.
Inherited IRAs are generally subject to required minimum distributions (RMD). Rules vary when the beneficiary qualifies as an “eligible designated beneficiary” (EDB) (e.g., surviving spouses, minor children under the age of 21, disabled individuals, and individuals who are chronically ill including special needs trust or an individual not more than 10 years younger than the decedent). These EDBs may stretch RMDs over their lifetime.
If the beneficiary is not EDB, the account balance must be distributed within 10 years for the individuals.
If the decedent was already receiving RMDs, the beneficiary will be required to continue taking RMD each year, except certain spousal transfers.
Penalties
Penalties on failed RMD’s starting in 2023: either 10% or 25% (down from 50%).
The IRS delayed the rules governing inherited IRA RMDs to 2024 & will waive penalties for RMDs missed in 2023 from IRAs inherited in 2022, where the deceased owner was already subject to RMDs. (With previous IRS relief, penalties are waived for missed RMDs from specific IRAs inherited in 2020, 2021, and 2022.)
