The latest on non-Spousal Inherited IRAs

[Deleted]

It's complicated.

Siblings and I each inherited one-fifth of Dad's IRA when he died last October.  Dad was 90, so had been taking RMDs.  We knew that we needed to withdraw everything by the end of 10 years.  Now there are hints that RMDs may need to be taken out every year before then.  I'm OK- I took out 10% last year after I got my distribution and and other 1/10 this year.

I asked my brother about this part since he's a retired tax accountant.  I dont' see it in many of the "advice" articls on inherited IRAs.  His reply:

"The IRS issued proposed regulations on the required distributions from an inherited IRA on Feb 24, 2022, about 5 or 6 weeks ago. I read the regulations and could see where they may require RMD's, but it still wasn't clear. I talked with someone at my old firm and she knew as much as I did and had not had more time to look due to tax season being in full swing. I finally called the IRS national office and talked to one of the people who drafted the proposed regs. Given they are proposed regs and they are taking comments on the regs, nothing is final. The lady I talked to was very helpful and confirmed the following:



Under the current drafting of the proposed regs, we will be required to start taking RMD's this year based on the life expectancy of the oldest of the 5 of us. I guess that is you, Athena53. If I looked at the IRS table correctly, given Athena53 was 68 on Jan. 1, the tables say her life expectancy is 20.4, This means you take the balance in your account as of 12/31/2021 and divide it by 20.4 to get the 2022 RMD.


Since these are proposed regs and they are getting a lot of comments on them, it is possible they will change. Given the uncertainty and just plain confusion around all of this, the person I talked with at the IRS said she expected there would be some sort of transitional relief for 2022. It would be a surprise if the final regs are even issued by 12/31/2022. If there is transitional relief, I would expect it means there would be no penalty for not taking a 2022 RMD.


The bottom line for me is that I am going to wait at least until late Dec to decide if I'm going to take a distribution. I am hoping there will be more concrete guidance by then, but that may be wishful thinking.



Sorry for all the confusion around this. It is really a mess."

Well, he's right about that last sentence.  Nasty little bit about basing them on the life expectancy of the oldest beneficiary (thus maximizing RMD).

Just wanted to let you know in case any of your are in this position.

[haapai]

Oddly, I was reading up on this last night.  All I could remember in the morning was "It's complicated."

[haapai]

deleted by author after re-reading the OP.

[bean29]

So Althena, 

will you continue taking 1/10 per year or will you switch over to the 20 year schedule?

If you pass on and have $$ left can your son inherit it and take the balance over another stretch period or will he have to take it all at once?  Just curious.

[haapai]

I found the Forbes article article that you appear to have read but I also found articles on inherited IRAs that were last updated after March 4, 2022 that are silent on the question that you have raised. 

I also noticed this paragraph from the article:

In practice, in many cases, it will probably be smart for some heirs to take more than the required payments in years 1 to 9, so they don’t get hammered in year 10 with a big tax bill. But the earlier 10-year rule interpretation—where you could take money out in any year you want—gave heirs the most flexibility. Depending on their tax situation, that gave them the option to take out more money in one year and none in another, or alternatively to leave all the money in the account growing tax-free for 10 years.

I'm in a totally different tax situation than yourself, much younger, and have no heirs, but I'm still struggling to see the virtues of the "flexibility" mentioned above.  If I'm still alive in year 10, I've built myself a tax bomb.  Am I missing potential estate planning angles? 

[Deleted]

Apr 4, 2022 12:25:53 GMT -5 haapai said:

I'm in a totally different tax situation than yourself, much younger, and have no heirs, but I'm still struggling to see the virtues of the "flexibility" mentioned above.  If I'm still alive in year 10, I've built myself a tax bomb.  Am I missing potential estate planning angles? 

Like you, I see no reason to set myself up for a tax bomb in Year 10. Even before this ruling I'd decided to give away the inheritance over a 10-year period. I don't need it. Most will go to 529s for my grandchildren, some direct gifts to DS and DDIL and the rest to charity. My brother seems to be holding off on distributions and I don't know why. I do know that his situation is different- his tax bracket is so exalted that they re-domiciled from NC to FL and the savings in personal income taxes (FL has none) pays the costs of the splendiferous house they bought in FL. It has an indoor pool.

Apr 4, 2022 11:35:48 GMT -5 bean29 said:

If you pass on and have $$ left can your son inherit it and take the balance over another stretch period or will he have to take it all at once?  Just curious.

I'm not sure- it would be a small part of his inheritance anyway (currently I have $63,000 in it. One thing that occurred to me is that when I re-write my will I could replace the cash gifts I eliminate the cash gifts I made to two charities and make in the beneficiary of my HSA and one the beneficiary of my inherited IRA, leaving more for DS and DDIL without nasty tax consequences. (The HSA, apparently, has to be liquidated and taxes paid right away.)

I'm just dragging my feet because everything was updated a couple of years ago. There's no other need to change things. I'm sure that somehow going into Word, deleting a few sentences, printing it out and signing it will run $500 or so.

[haapai]

I'd missed that you were quoting your brother in the OP. 

I imagine that he has some reason and that he is able to get and understand excellent tax and estate planning advice. 

[haapai]

Apr 4, 2022 11:35:48 GMT -5 bean29 said:

So Althena, 

will you continue taking 1/10 per year or will you switch over to the 20 year schedule?

If you pass on and have $$ left can your son inherit it and take the balance over another stretch period or will he have to take it all at once?  Just curious.

Nope, her kid would not be able to stretch it out over a new 10-year period.  It would still need to be emptied by Dec. 31, 2031. 

link  N.B. The link is to an Investopedia article from 2021 and does not address whether designated beneficiaries are subject to RMDs.  That proposal came later. 

The same (somewhat dated) article contains language that indicates that Athena's brother (a designated beneficiary subject to the 10-year rule) cannot name his spouse as the beneficiary/secondary beneficiary of that account and get stretch treatment for her.  Interestingly, the examples given at the end of the article do not include such a scenario.  I find that odd, since it seems to me that this is something that such an article would want to highlight. 

It would not help a bit if I quoted bits of the article for you.  There are tons of definitions and context that would be lost. 

[Deleted]

Apr 4, 2022 13:03:00 GMT -5 haapai said:

I'd missed that you were quoting your brother in the OP. 

I imagine that he has some reason and that he is able to get and understand excellent tax and estate planning advice. 

My brother is so savvy he made a distribution from Dad's IRA in Dad's last days, choosing an amount he figured would be taxed at a lower rate for Dad than if the rest of us inherited it and had to withdraw it.

Dad would be proud.

[haapai]

Are you sure that is why he did it?  He might have been advising your dad to wait until the end of the year to take his RMDs. 

Or maybe I'm transferring a bit.  My dad is a retired CPA and I can easily see him doing this and creating a huge headache for us if he dies late in the calendar year. 

[Deleted]

No, we knew Dad was near the end. I'm sure my brother would have already made an RMD from the account for 2021 but made an extra distribution (no law against that as long as you pay the taxes on it) figuring the tax on the distribution would be less on Dad's return than on any of ours. If Dad had survived to 2022 another RMD would have been necessary.