20 Dec I inherited this IRA and annuity. When do I have to take the money?

Q. I’m set to inherit an IRA and an annuity. My dad takes RMDs from the IRA but not yet from the annuity, which he doesn’t need to pay his bills. Is there any difference on the annuity — whether he takes RMDs or not — in how I will eventually take the money out?
— Heir

A. Figuring out the requirements for certain inherited assets can be confusing.

There are several things to consider here.

Required Minimum Distributions are required to be taken upon reaching the required beginning date, and age is currently 73, said Joseph Sarnecki, a certified financial planner with U.S. Financial Services in Fairfield.

“If your dad is not required to take RMDs from his annuity, I am going to assume it is a non-qualified annuity,” he said. “Regardless of whether he needs the funds or not, if the annuity was a retirement account and subject to RMDs, he would be required to take that amount.”

Let’s talk about distributions upon inheriting these assets.

Under the SECURE Act, beneficiaries lost the ability to “stretch” an IRA over their life expectancy, Sarnecki said.

In your situation, as the child of the account holder, you would be required to take distributions each year, and fully distribute the account in a 10-year period, he said.

“All distributions from a traditional IRA would be income taxable,” he said. “If the IRA is a Roth, you would still be required to distribute the account over 10 years but the distributions would be tax-free.”

For a non-qualified annuity where the original owner is not required to take distributions, a non-spouse is, he said.

“The SECURE Act did not change the rules for required distributions from a non-qualified annuity and the beneficiary can stretch these distributions out over their life expectancy,” he said. “Earnings and growth will be subject to income taxes. You can also take a lump sum or pay-out over five years.”

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This story was originally published in December 2024.

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.