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Confused about RMDs and Your Beneficiary IRA?

Confused about RMDs and Your Beneficiary IRA?

February 09, 2023

here’s good reason to have some questions, especially if you are a non-spouse beneficiary of an IRA account.  In recent years, legislation has been enacted that introduced some significant changes to Beneficiary IRAs including how long a non-spouse beneficiary has to deplete an account. If you are wondering if you need to take a Required Minimum Distribution (RMD) from your Beneficiary IRA, you need to understand the rules currently in place.

First, let’s clarify.

We are only discussing newer rules around non-spouse beneficiaries. In other words, if you are the spouse of an IRA account holder, different rules apply. If your husband or wife passes and you are the beneficiary, you may still take the minimum distribution annually over the rest of your life, as you might have already planned.

Next, a little history for context:

Prior to the SECURE Act, effective January 2020, if you inherited an IRA as a beneficiary, you may have qualified for taking RMDs based on your own life expectancy, known as a “stretch IRA”. For IRAs inherited in 2019 or prior, this will continue to be the case since they have been grandfathered.

Prior to 2020, when the original beneficiary passed away, any remaining balance was subject to the 10 year rule which required the balance of the account to be taken within 10 years. This will also remain unchanged for IRAs inherited prior to 2020.

 A quick look at where we are today:

After the enactment of the SECURE Act, there are some new considerations for IRAs inherited 2020 or later.

   -   If you inherited an IRA or ROTH IRA in 2020 or later, for most beneficiaries, the “stretch rule” has been eliminated.

   -   The assets in the IRA or ROTH IRA must be withdrawn by the end of the 10th year after death of the original owner.

   -   There are exceptions for designated beneficiaries including surviving spouses, minor children of the account owner, disabled individuals, chronically ill and individuals not more than 10 years younger than the IRA owner.

There are details and intricacies around the current rules and the proposals under consideration, so if you are having trouble figuring out what RMD is owed, please call Chatham Wealth Management at 973-635-4275. Talk soon!