Inherited IRAs and the 10-Year Rule: Today's Slott Report Mailbag | Ed Slott and Company, LLC

Inherited IRAs and the 10-Year Rule: Today's Slott Report Mailbag

By Andy Ives, CFP®, AIF®
IRA Analyst
Follow Us on Twitter: 
@theslottreport


Question:

Hi there!

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!

Sincerely,

Michael


Answer:

Michael,

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.)


Question:

Hi!

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?

Vicky


Answer:

Vicky,

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.)


Content Citation Guidelines

Below is the required verbiage that must be added to any re-branded piece from Ed Slott and Company, LLC or IRA Help, LLC. The verbiage must be used any time you take text from a piece and put it onto your own letterhead, within your newsletter, on your website, etc. Verbiage varies based on where you’re taking the content from.

Please be advised that prior to distributing re-branded content, you must send a proof to matt@irahelp.com for approval.

For white papers/other outflow pieces:
Copyright © [year of publication], [Ed Slott and Company, LLC or IRA Help, LLC - depending on what it says on the original piece] Reprinted with permission [Ed Slott and Company, LLC or IRA Help, LLC - depending on what it says on the original piece] takes no responsibility for the current accuracy of this information.

For charts:
Copyright © [year of publication], Ed Slott and Company, LLC Reprinted with permission Ed Slott and Company, LLC takes no responsibility for the current accuracy of this information.

For Slott Report articles:
Copyright © [year of article], Ed Slott and Company, LLC Reprinted from The Slott Report, [insert date of article], with permission. [Insert article URL] Ed Slott and Company, LLC takes no responsibility for the current accuracy of this article.

Please contact Matt Smith at matt@irahelp.com or (516) 536-8282 with any questions.

 

Find members of Ed Slott's Elite IRA Advisor GroupSM in your area.
We neither keep nor share your information entered on this form.
 

I agree to the terms and services:

You may review the terms and conditions here.