01 Nov My dad died. When do I have to take from his IRA?

Q. I have a question about an inherited IRA account and the Secure Act. My father died in 2021 and I inherited his IRA. At the time of death, he was receiving distributions. I am not a minor or disabled. The Secure Act is confusing and I am wondering if I can take the lump sum in 2031 or if I need to start withdrawing from his IRA now.
— Beneficiary

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

Inheriting an IRA from a non-spouse is very complicated.

Prior to the Secure Act, if you inherited an IRA from someone who was not your spouse, you had two options, said Bernie Kiely, a certified financial planner and certified public accountant with Kiely Capital Management in Morristown.

“The first was you could do nothing and then take the entire balance and pay the tax at the end of five years after the year the IRA owner passed,” he said. “The second option was to take Required Minimum Distributions (RMDs) starting the year after the IRA owner passed.”

These RMDs were based on your life expectancy. You would then take an RMD every year thereafter. This was known as a “Stretch IRA,” Kiely said.

The Secure Act changed the inherited IRA Rules.

Kiely detailed the rules for IRA owners who pass during 2020 or after the new rules.

“If the decedent reached the age where they were required to take their own RMDs then the beneficiary must take RMDs based on their life expectancy starting in the year after the year of death,” he said. “These RMDs must continue each year for 10 years. After 10 years the beneficiary must take out the remaining balance and pay the tax due.”

If the decedent had not reached the age where they were required to start taking RMDs, the beneficiary can do nothing and then take the entire balance in a single lump sum and pay the required tax, he said.

“Of course, in either situation, the beneficiary can clean out the inherited IRA immediately and pay the taxes due,” he said.

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This story was originally published in November 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.