The theme this week on the Retirement Quick Tips Podcast is: Inherited IRAs

Today, I’m talking more about the new rules on Inherited IRAs and the clarification that will hopefully be coming later this year. 

In true lawmaker form, when the SECURE Act was first signed into law at the end of 2019, there were no specifics on how the rule changes to inherited IRAs were going to apply. 

For example, the new rule stated that if you inherited an IRA as a non-spouse beneficiary after December 31, 2019, you now must withdraw those funds within 10 years of the owner’s death. In addition, there are other little landmines to watch out for too. You must take the original account owner’s RMD if they hadn’t already done so by the calendar year-end, and it’s unclear whether or not you need to take withdrawals annually or not. We’re 2 ½ years in, and there still isn’t clarification on the required timing and amounts for the withdrawals, making planning difficult. 

As an article in Kiplinger points out: ”an adult child who is the beneficiary of a parent’s IRA could wait 10 years after inheriting and then withdraw – and pay taxes on –  the funds in a lump sum. This would allow for a decade’s worth of tax deferral and make the process comparatively simple to handle – just empty the account by the end of 10 years.

But the proposed regulations which still aren’t finalized, are pointing toward an annual withdrawal requirement…and again, if you inherited an IRA in 2020 and you still haven’t taken a withdrawal, you’re still in the dark 2 years later about what to do with the inherited IRA withdrawals. It doesn’t matter when they finally get around to finalizing the rules…you still have 10 years from the account owner’s death to withdraw all of the funds. 

So you can see why some analysts in the planning world have used terms like “mess” and “nightmare” to describe some of the provisions. 

The good news is that the regulations will finally be final (hopefully!) later in 2022, so you’ll be able to plan around it better if you inherited an IRA, or you’re planning to pass along IRA assets to your children. 

Tomorrow, I’m going to talk about some clever ways to potentially reduce the tax bite on inherited IRA withdrawals. 

That’s it for today. Thanks for listening! My name is Ashley Micciche and this is the Retirement Quick Tips podcast. 

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