Financial Q&A Protecting your investment portfolio
QI
Financial Q&A
I inherited an individual retirement account (IRA) from my father in 2020. I was told the SECURE act that passed in 2019 would allow me to take distributions anytime within 10 years of his death as long as the entire balance was distributed at the end of that period. As a result, I have not taken any distributions since the account was opened in 2020. I recently heard there was a rule change for inherited IRAs. Will this affect how I should take distributions from this account? Your distribution plans might be affected by a recent IRS interpretation of the 10-year rule. Based on the guidance provided, if a non-spouse beneficiary inherited an IRA from someone who already started taking their required minimum distributions (RMD), then the beneficiary must continue taking annual distributions from the inherited IRA account in years 1 through 9 and then take the balance in year 10. If the original IRA account owner had not reached the required beginning date for distributions, then the non-spouse beneficiary does not have to take annual distributions or RMDs and they can wait until year 10 to take a distribution of the entire account balance. The calculation for the beneficiary’s RMD is based on the ending account balance for the previous year and an IRS life expectancy factor for the beneficiary’s age. For subsequent years, the calculation process is repeated using the year-end account balance and a reduction of one to the IRS life expectancy factor. Find out if your father was taking RMDs prior to his death. If the answer is yes, you should start annual distributions from the inherited IRA. If not, you can continue to wait until year 10 before the balance needs to come out. The IRS has not provided guidance on 2021 distributions that should have been taken and were not based on this new interpretation. They may retroactively require those inherited IRA account owners to take the 2021 distribution this calendar year on top of the 2022 distribution. Then again, they may just decide to move forward and not penalize anyone for a missing distribution. A 2022 distribution from your inherited IRA might be a prudent plan of action regardless of the situation. At a minimum, it will satisfy the annual requirement for 2022 and help you avoid the IRS penalty. While the IRS may require a minimum inherited IRA distribution, you always have the option to withdrawal any amount over the minimum if you choose. I suggest you revisit the situation later this year to see if the IRS has provided further guidance and consult your financial advisor if you have additional questions about account distributions and the IRS rules for inherited IRAs.
William B. Howard, Jr., ChFC, CFP International Place II 6410 Poplar Ave., Suite 330 Memphis, TN 38119 Telephone: 901-761-5068 Fax: 901-761-2217 whoward@whcfa.com 17
