What are my options for payouts from my inherited IRA?

Photo: pixabay.com

Q. My mother was the beneficiary of my sister’s IRA. My sister died in 2017. My mother died in 2019 and I am the successor beneficiary. The RMDs were made as required by my mother. Am I stuck with a RMD schedule based on my mother’s RMD schedule? She was about 90 years old when she became the beneficiary of the IRA. Or can I elect to fall under the SECURE Act even though my mother died in 2019 and be subject to a 10-year payout?
— Heir

A. We’re sorry to hear about your losses.

Your question is a common one.

With recent rule changes under the SECURE Act and the suspension of Required Minimum Distributions (RMDs) for the year 2020 because of COVID, it can be confusing to determine the right path, said Todd Scorzafava, a certified financial planner with Eagle Rock Wealth Management in East Hanover.

He said in general, you must have taken your RMD for 2021.

He said this includes employees and retirees who are taking lifetime RMDs from an inherited IRA, employees over age 72 taking RMDs from their own traditional IRAs, and federal retirees who must take RMDs from their TSP accounts, their own traditional IRAs and qualified retirement plans they may have previously participated in.

Ultimately, it is the responsibility of the IRA owner and retirement plan participant to take the proper amount of the annual RMD. An incorrectly calculated RMD below the required amount could result in IRS penalties, he said.

For an inherited IRA, the timing of when you inherited is important.

The SECURE Act changed the rules so that non-spouse beneficiaries must take out all the funds from an inherited IRA within 10 years.

Scorzafava said because your mother died prior to Jan. 1, 2020 — when the SECURE Act was enacted — the 10-year payout rule does not apply.

You must use the RMD schedule that was being used by your mother and you must do so until the funds are emptied from the account, he said.

You should also note that you can take more than the required minimum, but remember that those distributions will be taxed as income, Scorzfava said.

He said starting in 2022, new life expectancy tables for calculating RMDs from IRAs and employer-sponsored retirement plans, including the Thrift Savings Plan (TSP), will go into effect.

You can see those new tables here.

Email your questions to .

This story was originally published on Jan. 5, 2022.

NJMoneyHelp.com presents certain general financial planning principles and advice, but should never be viewed as a substitute for obtaining advice from a personal professional advisor who understands your unique individual circumstances.