Inherited IRAs and the 10-Year Rule: Today's Slott Report Mailbag
By Andy Ives, CFP®, AIF®
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I have a quick question, so I thought I’d reach out to you to get your take on this. This year, IRA RMD’s have been waived, even for inherited IRA’s. That said, if a non-spouse inherits an IRA this year – and the new RMD rules dictate a 10-year withdrawal – but this year’s RMD is waived – does this year (2020) still count as year 1? In other words, starting next year are the inherited IRA RMD’s essentially on a 9-year clock? Or would this year not “count” (with the waiver of RMD’s) so the non-spouse beneficiary could start his/her RMD’s next year, but still be on a 10-year clock – versus a 9-year clock??
Thank you, Ed Slott and Company!
The 10-year clock does not become a 9-year clock. The 10-year clock first came into existence under the SECURE Act this year – 2020. However, if a person inherited this year (2020), their 10-year clock does not start until the year after the year of death – so 2021. As such, the account will need to be emptied by December 31, 2030. (Remember, there are no annual RMDs with the 10-year payout. A person can withdraw as much or as little as they wish each year, as long as the account is drained by the end of year 10.)
We have a situation where a client who had an inherited IRA (from his father) has just passed away and his beneficiary was his spouse. So, we’re not sure what happens. Some say that she would now own the inherited IRA and would be able to continue to receive RMD payouts under her deceased’s husband’s life expectancy. Others say she has an inherited IRA that needs to be liquidated in a 10-year time period. What do I do now?
The spouse in this case is a successor beneficiary (beneficiary of a beneficiary) of an inherited IRA. The rules are that successor beneficiaries who inherit in 2020 or later are automatically subject to the 10-year payout. It does not matter if the successor beneficiary is the spouse, a minor, disabled, or any of the other groups of people that can stretch under the SECURE Act. Successor beneficiaries receive the 10-year payout, period. (Incidentally, if she were to die before the end of her 10-year period, her beneficiary could only continue with the remaining time on the original 10-year term.)
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