31 Jan I inherited 2 IRAs. When do I have to take money from the accounts?

Q. Did something change recently? I read that you can take out as much or as little as you want from an inherited IRA as long as you take it all out by the end of the year of the 10th anniversary of the original owner’s death. I thought you had to take minimum distributions each year. I inherited both a Roth and a traditional IRA from my mom and I’m confused. We had three years of penalties for not taking RMDs forgiven by the IRS and we don’t want to make mistakes.
— Unsure

A. It makes sense that you’re confused,

The changes to inherited IRA distributions from the SECURE Act have flummoxed many a beneficiary.

First, we have to make a distinction between a traditional IRA and a Roth IRA.

When you inherit a traditional IRA from a non-spouse, you must pay federal and possibly state taxes on all distributions that you take, said Bernie Kiely, a certified financial planner and certified public accountant with Kiely Capital Management in Morristown.

When you take money out of an inherited Roth IRA there are no taxes due, he said.

“Even though there are no taxes due on a Roth, the IRS still wants you to empty the account in ten years so the money is back in the taxable world,” he said. “The original owner of a Roth IRA does not have to take any money out of the account. They can leave it alone for their entire life. Generally, inherited Roth IRAs are subject to the same required minimum distribution (RMD) requirements as inherited traditional IRA accounts.”

If you inherit a Roth IRA from someone who is not your spouse, the new 10-year rule applies to you, Kiely said. You must take all the funds out of the Roth IRA by Dec. 31 of the year containing the 10th anniversary of the owner’s death. Roth IRA withdrawals are not subject to income tax, he said.

If the original owner was not 72 when they died, then they were not required to take RMDs, he said.

“Consequently, the person who inherited the IRA is also not required to take any RMDs,” he said. “They are required to empty the account by the end of the year containing the tenth anniversary of the decedent’s death.”

Additionally, they can take some or all the funds out of the account at any time prior to the end of the 10-year period, Kiely said.

If the original owner was 72 when they died, then they were required to take RMDs, Kiely said.

“Consequently, the person who inherited both the Roth IRA and regular IRA are required to continue taking RMDs based on the deceased’s age for both the regular IRA and the Roth IRA,” he said. “Additionally, on top of the RMDs, they can take additional funds out of the account at any time prior to the end of the 10-year period.”

You stated that your mom died in February of 2020. That means the new 10-year rules apply to you, he said.

“You also mentioned that three years of penalties for missed RMDs were forgiven. This tells us that your mom was taking RMDs when she passed,” Kiely said. “The law that applies to you states that you must continue to take RMDs based upon your mom’s age for the 10 years following her passing. At the end of the ten-year period you must withdraw all the remaining funds in the account.”

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This story was originally published on Jan. 31, 2023.

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