When do I take distributions from this inherited IRA?

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Q. I am inheriting a small IRA this year. Can I wait until year 10 after the death of my father to take the full distribution or do I have to follow a Required Minimum Distribution schedule and take out some every year for 10 years?
— Beneficiary

A. We’re sorry about the loss of your father.

There have been changes in recent years that affect distributions from inherited IRAs.

If you inherited an IRA from someone who is not your spouse before Jan. 1, 2020 you could have taken Required Minimum Distributions (RMDs) over your lifetime, said Bernie Kiely, a certified financial planner and certified public accountant with Kiely Capital Management in Morristown.

By doing this, you could spread the income tax liability over your entire life, he said.

These inherited IRAs were known as “Stretch IRAs.”

But in late 2019, President Trump signed the SECURE Act, which stands for “Setting Every Community Up for Retirement Enhancement.”

“Part of the SECURE Act changed the way inherited IRAs from a non-spouse are treated,” Kiely said. “If the IRA owner died on or after Jan. 1, 2020, Stretch IRAs are gone and the new 10-year rule came into effect.”

Under the 10-year rule the inheritor must take 100% of the IRA out and pay tax by the end of the tenth year after the original IRA owner passes away, Kiely said.

So, if you inherit an IRA from someone who is not your spouse you can take it all out now and pay the tax, take a little out every year and pay the tax on what you took out, or wait and take 100% of the IRA out on the last day of the 10-year period, Kiely said.

Keep in mind that new proposed regulations say those who inherit an IRA from someone who was taking RMDs must continue taking RMDs during years one to nine, and then empty the account at the end of the tenth year. If the owner dies before age 72, then the beneficiary would not have to take annual RMDs.

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This story was originally published on May 10, 2022.

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