Do you know the rules for beneficiaries of IRA’s inherited after December 31, 2019?
Prior to The SECURE Act, non-spouse IRA beneficiaries were required to take annual required minimum distributions from an inherited IRA, based on their own life expectancy. This was known as stretching your IRA because it allowed beneficiaries to stretch out the distributions over their lifetime.
The SECURE Act changed that and requires non-spouse beneficiaries of an IRA to withdraw all assets within 10 years of the death of the original account holder. Even with careful planning, this can push the beneficiary into a higher tax bracket, causing more of that inherited IRA to be lost to taxes.
There are some exceptions to the new 10-year rule. Minor children who inherit may leave the funds in a beneficiary IRA until they reach the age of majority or 26 if still in school, and their 10 years begin at that time. If you are disabled or have a chronic illness, or if you are less than 10 years younger than the original account holder, you may continue to use your own life expectancy to draw the funds and are exempt from the 10-year rule. Individuals who inherit an IRA from their spouse are still able to treat the IRA as their own and take RMD’s based on their life expectancy.
If you are a non-spouse who inherits an IRA this year, be sure to consult your CPA and plan your withdrawals to minimize the tax impact!
Honorine M. Campisi, CPA