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I Inherited an IRA. Now what?

Writer's picture: Ally ChanelAlly Chanel

Inherited IRAs come in many flavors, such as Traditional, Rollover, SEP, and SIMPLE IRAs. These accounts are gifts from loved ones that go to a beneficiary after the account owner has passed. While Inherited IRAs are similar to regular IRAs, they are also subject to mandatory withdrawal rules you should know about.


Suppose the beneficiary is the spouse of the diseased. If the original account holder had yet to start taking Required Minimum Distributions (RMDs), then the surviving spouse can treat the inherited account as their own and move it into their own IRA. While this is the most common option, the surviving spouse can also elect to take RMDs over ten years, according to the IRS life expectancy tables, or as a lump sum payout. Also, if the original account holder had attained RMD age but did not take their yearly RMD, the beneficiary spouse must take the RMD out before electing any other options.


However, the IRS rules are different when the beneficiary is not a spouse. Suppose the beneficiary is an Eligible Designated Beneficiary. In that case, they may take RMDs over ten years, according to the IRS life expectancy tables, or as a lump sum payout if the original account holder had yet to start RMDs. In situations where the original account holder had started RMDs, the beneficiary may elect to take a lump sum distribution or annual RMDs according to the IRS life expectancy tables. Examples of Eligible Designated Beneficiaries include minor children of the account holder, chronically ill or permanently disabled individuals, or those not more than ten years younger than the original account holder.


Eligible Beneficiary Flow Chart
Eligible Beneficiary Flow Chart

If a beneficiary chooses to take RMDs according to their life expectancy tables, then they take the ending acccount value at December 31st of the year prior by your life expectancy factor using the table below. For example, an account with $1,000,000 December 31st, 2024 balance that an Eligible Designated Beneficiary who is 70 years old inherited would have an RMD this year of $53,191.49.


$1,000,000 / Life expectancy factor of 18.8 = $53,191.49


Life Expectancy Table

Source: Fidelity Investments
Source: Fidelity Investments

If a beneficiary does not meet the Eligible Designated Beneficiary criteria, they must deplete the account to $0 by the end of the tenth year. If the original account holder did not yet start RMDs, there is no requirement to take annual RMDs. However, if the original account holder did, the beneficiary must take yearly RMDs in addition to the depletion of the account by the end of the tenth year.


If you recently inherited an IRA and are unsure what rules apply, Lundeen Abrams Advisors is here to help. We regularly assist our clients and their loved ones in navigating the complex world of IRAs. Please reach out to us today to schedule an appointment so we can begin helping you with your unique situation. We look forward to talking to you soon!

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