My IRA grows but my RMDs get smaller. Why?


Q. I have an inherited IRA from my husband and it’s worth more than last year. My accountant said I have to take a smaller Required Minimum Distribution (RMD) but that doesn’t make sense because the account is worth more. I’m worried it won’t be enough to satisfy the IRS. Is there a way for someone who isn’t an accountant to understand?
— Widower

A. We know RMDs can be confusing, but it’s totally possible the accountant is correct.

Here’s why.

It depends on how the RMD is calculated.

If your accountant is using the IRS’ Life Expectancy Method, and if last year was the year in which your husband passed away, you could have a smaller RMD even though the account is worth more, said Joann Del Mauro, an accountant with Wilkin & Guttenplan in Martinsville.

“In the year following an IRA owner’s’ death, the calculation of the RMD is the same as if the owner had received it,” Del Mauro said.

In the subsequent years, a spouse who is the sole beneficiary of an IRA can treat the IRA as their own and calculate the RMD based upon their age or start required distributions when they reach 70 1/2, or keep the IRA as an inherited IRA and base the RMD on their age, she said.

“Using the life expectancy method and assuming you are younger than your husband, this would result in a lower RMD,” Del Mauro said. “You can withdraw more than the minimum required amount but remember that amounts will be considered taxable income except for any portion that was previously taxed.”

The formula can be found on the IRS web site along with the appropriate tables used in the calculation.

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