Inherited IRAs and RMDs: Today's Slott Report Mailbag
By Sarah Brenner, JD
Follow Us on Twitter: @theslottreport
I have read your updates and shared information regarding the SECURE bill that is in the Senate currently. The information discusses the non-spouse beneficiaries of IRAs will need to take distributions over 10 years as a lifetime stretch will not be an option anymore.
Do you have any information on existing Inherited IRAs that are already in the stretch phase? My wife inherited an IRA in 2007 and we are stretching it over her lifetime. Does the bill grandfather existing and focus on future inherited IRAs? I realize we will not know the final answer until the bill is passed by both chambers and signed by the President, but wondered if you had any preliminary information.
Good news for current holders of inherited IRAs! The version of the SECURE Act, which recently passed the House but stalled in the Senate, would grandfather those accounts. The stretch could continue for them. The new rules would only be effective for deaths after December 31, 2019. Stay tuned to the Slott Report as we follow all developments with this proposed legislation.
Hello and good morning from Pennsylvania. I admire and value advice and real-life practices from Mr. Slott and the entire team. Thank you. I have an inquiry for a personal Inherited IRA, now sitting at Vanguard.
I think I understand IRS rules that limit what can be done with an Inherited IRA. I’m curious to understand from your expertise and if it is prudent to just continue with RMD’s each year versus pay the tax and convert it to a ROTH.
Can your team comment please? My wife is the holder. She is currently 64 years of age, while the amount today is plus or minus $87K for the Inherited Traditional IRA. I am 67-years of age. At this point, there has been 3 RMD’s taken, by my wife in the $3200 to $3500 range.
Fortunately, the stock market has allowed us to keep the Principal Amount (or higher) from the original amount inherited at $83K, notwithstanding the RMD withdrawals. That’s has been a good thing, I suppose for her and me too. Thanks.
You are definitely on the right track when it comes to thinking about the tax impact of future RMDs and you are right to consider the advantages of a Roth IRA when it comes to minimizing that impact. However, you are limited by what the tax law allows. Unfortunately, inherited IRAs may not be converted by nonspouse beneficiaries. Converting your wife’s inherited IRA is, therefore, not an option. This is a strange rule because employer plan funds (like a 401(k)] inherited by nonspouse beneficiaries can be converted to a Roth IRA. The tax code is not always logical!
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 firstname.lastname@example.org 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.
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 email@example.com or (516) 536-8282 with any questions.