IRS FINALLY Clarifies Rules On Inherited IRAs RMDs!
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- čas přidán 5. 09. 2024
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What if children/grandchildren IDENTIFY as a spouse?
The SCOTUS overturned Chevron Deference, meaning IRS regulations could fall, pending courts cases that challenge the agency. The Congress could then debate in committee and create the regulation as president signed law, or inact a different rule on the matter.
Those will take a year or more per case/agency/area of law so don't hold your breath on sudden changes. Even with Trump elected and his people at the head office it'll take time to undo, change or whatever they want to call these numerous regulations. Meanwhile, I suspect many bureaucrats will slow these changes down thru their various gimmicks, reviews, etc adding to the time to change them.
The 10 year rule to deplete does NOT apply if the non-spouse INHERITED IRA was inherited BEFORE 2020. I know this because I inherited one in 2016.
Me too. I am taking RMD‘s, and I am going to stretch it out over my lifetime.
That is my understanding as well. My wife inherited two IRA's. Both were prior to 2020, so we have started lifetime RMD's/
@@billl1127 I don’t like having to take RMD’s, but it is very satisfying to see the account top back up over the year.
I wish he had clarified this, because this is how I understand it also, pre 2020 not affected by the "ten-year rule".
@@leelightfoot1627 Exactly. I’m surprised he didn’t know this since he gives advice on financial planning and retirement.
I inherited an IRA 5 years ago (2019) and am trying to get it cleared out this year, which is the last year I'll be self-employed. The plan has been to pull out an amount equal to the solo 401K contribution limit, and dump the Inherited IRA funds into the solo-K account. Then at the end of the year, convert the self-employed solo-K into my Roth IRA. I end up paying tax twice on the funds but get one deduction for the solo-K contribution, so it works out similar to a Roth conversion without being a Roth conversion.
Good way to go if you are self-employed and have an inherited IRA. And yes, it's a good idea to get those inherited funds out of the way ASAP because of all the associated rules, even though in my case, I think I fall under the old rules.
This new rule wouldn't have applied to you.
@@maurademarco988 Yes, I realize that. But I still wanted to take advantage of my last few years of self-employment to facilitate this "conversion" process as well as to simplify things going forward. Having inherited and traditional IRAs to deal with RMDs with potentially different RMD rules for each didn't sound appealing. This year I should be able to close out the inherited IRA as well as the solo-K account leaving just the IRA, Roth and brokerage accounts.
Approximately $18,000 of a $325,000 inheritance from my older brother is a traditional IRA that was originally our mothers.. I've been taking annual rmds from the inherited IRA since 2020 current balance is $1,200. Luckily only the traditional inherited IRA is the only portion of my inheritance that is taxable. Most of my inheritance was a taxable brokerage account with a stepped-up cost basis, savings account and life insurance.
And if the decedent wasn’t of RMD age when it passed to an heir then the heirs age is the standard that is used?
No, there are no RMDs then, but the account must be deleted in 10 years with the exception of Eligible Designated Beneficiaries.
This is what we did. We aren't touching our accounts but even though they didn't finalize until now we suspected they would do what they have done. We decided to withdraw 10ths. 6 more withdrawls to go.
I understand the 10-year rule but I thought the RMDs are based on the deceased person's age not the age of the beneficiary. Isn't that why when you set up inherited IRA at Schwab they ask you for the deceased person's birthday?
I’ve been tapping an inherited IRA and using proceeds to do a backdoor Roth up to the max per year. That’s legal and has net effect of a Roth conversion.
lol....I always thought you were from New Hampshire!!!
Thanks. Very complicated rules depending on all the various scenarios. After reading the full text from the IRS, I "think" they also clarified that if you inherit an IRA from an "eligible" designated beneficiary, you have to take it out in 10 years (but I couldn't see where RMDs were mandated in such scenario). I'm not sure if I read it correctly or not.
I just inherited an ira from my brother. 😢 He was less than rmd age. I think my income will be less next year and am taking income from my taxable account this year, then will start pulling from inherited next year.
Ideal if one or both of spouses who inherit the IRA are healthy enough AND DONT NEED THE DISTRIBUTION…. use the 10 year payout to fund a life policy that can provide tremendous tax free leverage to family with the “found” inheritance
You didn't mention that this guidance is effective in 2025.
Who decides your life expectancy? I don’t know that would even work.
Let’s say I’m 60. Inherited IRA from non-spouse who was 85. I have to deplete the funds in 10 years but how are RMDs calculated for me? Is it just a personal judgement call?
Single life expectancy table.
The government (IRS) will TELL you your life expectancy 😂
They have a rule and a chart for everything.
Another bonus to the original owner of the Traditional IRA/401K getting it converted to a Roth IRA. Their heirs can let it continue to grow tax free for ten years, at which point they take all that growth out all tax free! No RMD’s for your heirs either.
Use the inherited ira funds to pay the tax on Roth conversion each year.
Thanks for the new information! I will tell her if she inherits IRA/401k, she will need to take the distributions every year. I told her the secure act said she could take it out at year 10 but I now know that is not accurate. I am retiring in 7.5 years at age 54.5 with IRS rule of 55 anyway. So I may not do Roth conversions if we get anything from her parents. so important that I'm doing Roth 401k now! My in laws are nice people and I hope they live to 100! I don't need their money I just don't want to get killed with taxes and I'm sure they would tell me to prepare for the tax bomb coming my way!
@@hoppybeers1849 I used to have a friend whose GF’s wealthy father passed away. Her stepmother heartlessly got rid of all personal effects and sold the house, which the GF grew up in. There were delays and bad faith by the stepmother. My friend said, “. . . when we get our money . . . “ and he wasn’t even married to her!
I know of another couple in which the wife’s elderly mother passed away. Her sister was acting in bad faith regarding trust administration, and they wound up in probate court. Her husband also talked about “our money”.
@@hoppybeers1849 I really hope they live to 100. imagine the compound interest! I told her I want to do qualified charitable distributions at age 70.5 if I live that long.
@@cutehumor ahh the gratitude is strong in that one ....
@@kevinkanter2537 just don’t call me John Francis Amherst Cecil 🤣
If you have been taking Inherited IRA RMDs well before the last ten years. Are you grandfathered with RMDs based on your life expectancy?
If you inherited the IRA before the Secure Act 1.0 in 2020, yes you are grandfathered to be able to withdraw the funs over your lifetime.
What about an inherited 401k
Well Josh I was allowed to convert one of my Mom’s IRAs to Roth IRA. I paid income taxes that year on the amount converted and opened a non-spousal IRA to put it in. Did they change that when they started the 10 year withdrawal time frame?
If funds transferred as Roth Ira to children. What has to be done in 10 years? I thought it to be tax free money.
This is concerning traditional IRAs. They don't not pass tax-free. Only Roths do that.
If your children inherit a Roth IRA, you're correct, they receive the funds and don't have to pay taxes on them. However, the IRS still mandates they have to withdraw the funds by the end of the 10 year period.
@demars-financial precisely, but without the tax complications, there are no reasons not to assuming the recipient is aware of the rule.
Do the same rules apply to an inherited HSA?
so an inherited Roth could grow tax free for 10 years at which point the heir could withdraw it all tax free.
Correct
PLEASE PLEASE PLEASE explain that this does NOT apply to anyone who is qualifyingly DISABLED and is inheriting a ROTH IRA. Someone who is DISABLED will NOT be required to take all distributions within that 10 year window. They will be able to take the inherited distributions OVER THEIR LIFETIME. Misinformation on this point might harm someone who is disabled and who is already needing to carefully manage their financial affairs because of enrollment in various governmental programs and other financial considerations. Please also explain the exemptions to this 10 year rule!!!
Do you have to have the social security definition of disabled for this rule to apply. I am considered disabled having an Autism diagnosis for my HUD housing. But since I am working I am not classified as disabled for social security purposes.
@@martinguldner3990
www.irs.gov/instructions/i1040sr#:~:text=A%20person%20is%20permanently%20and%20totally%20disabled%20if%20both%20of,or%20can%20lead%20to%20death.
"A person is permanently and totally disabled if both of the following apply. They can't engage in any substantial gainful activity because of a physical or mental condition. A physician determines that the disability has lasted or can be expected to last continuously for at least a year or can lead to death."
I thought the RMDs a non-spouse is required to take would be based on the decedent’s life expectancy (although, ironically, I guess that’s zero now)?
nope - you are correct 🙂 the IRS ruliing is actually pretty concise w/ examples / interpretation ...
What is this RMD stuff about? What problem(s) is this meant to solve??? To me, it’s just bureaucratic BS.
It's the hoops you have to jump through for the government to allow your retirement money to grow tax deferred. They will wait a little while, but they want their tax money at some point.😮
The IRS hits you with a 25% penalty on what you should have withdrawn, plus the taxes, if you don't comply with their rules. Traditional IRA accounts are pre-tax, allowing you to defer paying taxes on money you contribute to pre-tax accounts. There are conditions to take advantage of certain tax strategies, in this case having to withdraw funds so the IRS can then tax it. I don't make or love the rules either, but there are potentially significant benefits depending on ones' personal circumstances.