When the SECURE Act was passed by Congress at the end of 2019, the rules changed for most future Inherited IRA holders. But wait… wasn’t there also the CARES Act in 2020 that allowed ALL IRA owners to forego taking their required minimum distribution (RMD) for 2020? Yep. Between the SECURE Act and the CARES Act, you should be asking questions if you hold an Inherited IRA. We’re here to break down some of the most common questions regarding RMDs on Inherited IRAs.
These FAQs are based on inherited IRAs. If you are a surviving spouse, you have the option to treat the IRA as inherited or your own. These questions are based on treating it as inherited.
Do I have to take an RMD this year?
If the decedent’s date of death was prior to 2020:
If you’re the surviving spouse and your spouse was under 70 ½ at death, no.
If you’re the surviving spouse and your spouse was over 70 ½ at death, yes. Your RMD is based on your life expectancy.
If you’re a non-spouse beneficiary, yes. Your RMD is based on your life expectancy or the decedent’s remaining life expectancy (if longer).
The above rules do not apply if you are implementing the five- year rule. Be sure to have the account fully distributed by 12/31 of the fifth year following the decedent’s year of death.
If the decedent’s date of death was after December 31, 2019:
If you’re the surviving spouse and your spouse was under 72 at death, no. Your RMD can be delayed until the decedent would have turned age 72 and will be based on your life expectancy.
If you’re the surviving spouse and your spouse was over 72 at death, yes. Your RMD schedule can be reset to your own life expectancy if desired, but the default is based on the decedent’s remaining life expectancy.
If you’re a non-spouse beneficiary, no. You are subject to the 10-year rule outlined below.
* These rules apply for both Inherited Traditional and Inherited Roth IRAs. *
I didn’t take my RMD in 2020. Do I have to make up for it this year?
RMDs are back on track on for 2021 after the requirement was eliminated for 2020. This also means you won’t have to “double-up” for 2021 if you normally would have been required to take an RMD last year but opted not to.
Am I part of the 10-year rule for Inherited IRAs?
The SECURE Act changed the rules for non-spouse beneficiaries who inherited an IRA (this applies to Traditional and Roth IRAs) from a decedent whose date of death occurred in 2020 or later. The good news is, you don’t have to take RMDs. This gives you more control over your taxes, which can be a good thing if you have some lower income years in your future. It gives you the option to delay. What could be bad news is that rather than using a life expectancy table to calculate RMDs, the entire account must be distributed by December 31st of the 10th year after the death of the original account owner.
There is a notable exception to this rule for eligible designated beneficiaries. These beneficiaries include the surviving spouse, a minor child of the deceased, a disabled / chronically ill individual, or any beneficiary who is not more than 10 years younger than the deceased. These beneficiaries still have the option to take RMDs based on their own life expectancy.
As with any new law, additional IRS guidance comes out over time. The description we’ve provided in this section of the 10-year rule is the current consensus of the financial planning community (as of April 2021). If new information becomes available that would change how you approach inherited IRA RMDs, we’ll update this post.
The IRS charges a 50% excise tax when you fail to withdraw an RMD. We hope we’ve helped you make sense of these new rules for new beneficiaries. If you’d like a second set of eyes to review your situation, please reach out to us.