How Must I Take Distributions from my Twice-Inherited Traditional IRA? This flowchart will guide you through the eligibility factors.
How Must I Take Distributions from my Twice-Inherited Traditional IRA?
Inheriting a Traditional IRA for the second time involves complex distribution rules. Understanding these rules is essential to avoid penalties.
When a Traditional IRA is inherited twice, distribution options depend on the relationship to the original and most recent owners. Additionally, the SECURE Act, effective in 2020, introduced rules that impact most inherited accounts.
If you inherited the IRA from a non-spouse beneficiary who had inherited it previously, the 10-year rule generally applies. This means you must withdraw the entire balance within ten years. You can take distributions at any time during this period, but the account must be emptied by the end of year ten.
RMDs
If the previous owner was already taking Required Minimum Distributions (RMDs), you must continue those distributions based on their life expectancy schedule. However, the 10-year rule still requires you to fully deplete the account within the ten-year window.
If you are a spouse inheriting a twice-inherited IRA, your options are more flexible. You can roll it into your own IRA or treat it as inherited. Rolling it into your account allows you to delay RMDs until age 73. Treating it as inherited means you must follow the distribution schedule set by the previous owner.
Eligible Designated Beneficiaries (EDBs), such as disabled individuals or those within ten years of the original owner’s age, may take distributions over their life expectancy. However, this option is limited to specific circumstances.
Distributions from a Traditional IRA are taxable as ordinary income. To avoid a significant tax burden, consider spreading withdrawals over several years.
Managing a twice-inherited Traditional IRA requires careful planning. Consult a financial advisor or tax professional to ensure compliance and minimize taxes. By understanding the rules, you can make informed decisions and protect your inheritance.
This article is educational only and is not intended to be investment, legal, or tax advice or recommendations, whether direct or incidental. Again, this is not investment advice. Consult your financial, tax, and legal professionals for specific advice related to your specific situation. Never take investment advice from someone who doesn’t know you and your specific situation. All opinions expressed in this article are those of the people expressing them. Any performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be directly invested in.