28 Feb I just inherited an IRA from a neighbor. What should I know?

Q. I just inherited an IRA from a neighbor. It was a surprise. He had never taken out any RMDs. What should I expect to have to do for my own RMDs? I’m 62 and my neighbor was 67, if that makes any difference.
— Investor

A. You had a very kind neighbor.

There are several pieces here.

The rules for taking distributions from inherited IRAs differ depending on whether the beneficiary is an “eligible designated beneficiary,” such as an account owner’s surviving spouse or minor child, a disabled individual, a chronically ill individual or any other individual who is not more than 10 years younger than the IRA owner, said Neil Becourtney, a certified public accountant and tax director with Smolin, Lupin & Co. in Red Bank.

We will assume that you are neither disabled nor chronically ill and you do not meet this definition.

“As your neighbor died before reaching his Required Minimum Distribution (RMD) start date of age 73, you do not have to take annual RMDs,” Becourtney said. “Instead you are required to fully distribute the IRA by the 10th anniversary of your neighbor’s death.”

He said you can choose to take distributions prior to year 10 but you are not obligated to do so.

As you have attained age 62, you will be eligible for the New Jersey pension exclusion on any IRA distributions you take, the exclusion amount a function of your total gross income reported on Form NJ-1040, he said.

You should keep the inherited IRA separate from your own IRAs if you have any as your own IRAs do not need to be distributed in full within ten years, he said.

“The RMD age will increase in 2033 to age 75. Since you are currently 62, you will reach age 75 in 2038, which is when you would be required to take RMDs from your own IRAs under the current law, assuming this is not changed in the interim,” he said. “It would be advisable to coordinate distributions both from the inherited IRA and if applicable your own IRAs with your IRA custodian.”

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This story was originally published in February 2025.

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