Inherited IRAs and SIMPLE IRA Creditor Protection: Today's Slott Report Mailbag
By Andy Ives, CFP®, AIF®
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In 2021, my wife inherited an IRA from her sister who was 4 years younger. My wife therefore is an EDB (eligible designated beneficiary). Her sister was 66 years old at date of death. My wife has been taking RMDs based on her own age. What happens when my wife dies? Do all the following beneficiaries have 10 years to deplete the inherited IRA? Are there RMDs that need to be taken each year for those beneficiaries? If so, is the RMD based on the factor that my wife was using?
Thank you for your time and information.
Since this is an inherited IRA, after your wife’s death the next beneficiary will be a successor beneficiary. The rules dictate that if a successor inherits an account that was being stretched (which this one is), then the 10-year rule will apply to the successor, regardless of who the successor is. It does not matter if the successor is a spouse or disabled or could otherwise qualify as an EDB, the successor gets the 10-year rule. Also, RMDs will apply in years 1- 9 of the 10-year rule based on your wife’s single life expectancy. Essentially, the successor will “step into the shoes” of your wife, continue with the exact same single life expectancy factor (minus 1 each year), but will also have to deplete the account by the end of the 10th year after the year of your wife’s death.
I am hoping you can answer a question for a client of ours. He is potentially being sued. Are SIMPLE IRAs protected from creditors? Any guidance would be appreciated.
SIMPLE IRA accounts do have some creditor (non-bankruptcy) protection. However, the level of protection is based on state law and will vary from state to state. Some states offer 100% creditor protection, but not all. If your client is potentially facing a lawsuit, he should seek legal counsel to confirm what creditor protections are available within his state.
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