09 Nov Rules for if you inherit an inherited IRA

Q. How is the RMD of an inherited IRA calculated if that IRA was already also an inherited IRA?
— Beneficiary

A. Required Minimum Distributions, or RMDs, can be confusing.

And the rules for inherited IRA accounts are different from regular IRAs.

“There is a finite maximum number of years by which the inherited IRA owner must distribute the entire account,” said Howard Hook, a certified financial planner and certified public accountant with EKS Associates in Princeton.

“The max number of years is determined by looking at the Single Life Expectancy IRS table and looking up your age as of Dec. 31 of the year following the owner’s date of death,” Hook said. “The life expectancy number for that age is the maximum number of years the IRA account will remain with a balance.”

Hook offered this example.

Say someone inherits an IRA at age 65. Based on the life expectancy tables and age, that person would have a maximum of 21 years to distribute the IRA, Hook said. If the owner takes RMDs each year, then the account will by definition be liquidated in 21 years, he said.

To calculate the RMD of an inherited IRA if the IRA was already an inherited IRA, Hook said, the beneficiary must continue taking out RMDs over the same remaining schedule.

“In my example above, if the inherited IRA owner dies after taking 18 years of RMDs, then their beneficiary can only stretch the IRA an additional three years,” he said.

There’s one point to note here.

“There has been quite a bit of talk lately that Congress may pass a tax law to limit the ability of non-spouse IRA owners, and a few other exceptions, to stretch distributions over no more than five years,” Hook said. “This would make it less likely that someone will inherit an inherited IRA.”

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