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Caring For Generations

Your Named IRA Beneficiary May Need an Instruction Manual

by | Jun 12, 2024 | estate and tax planning, Estate Planning, estate planning documents

“This is the fifth year the IRS has canceled penalties for non-spouse beneficiaries who didn’t take RMDs from inherited accounts,” Tracey Longo writes in Financial Advisor Magazine. The author is referring to the fact that in 2019, the SECURE Act said that non-spouse beneficiaries could no longer “stretch” their distributions from inherited IRAs over their lifetimes and instead needed to completely draw down the IRA within ten years of the account owner’s death. SECURE 2.0 clarified that, while the account can remain open for ten years, there is still a requirement to take minimum distributions beginning at the inherited account owner’s age 75.

“Beneficiaries of an IRA have the option of taking a lump-sum distribution of the inherited account at any time, the IRS website explains, noting that “beneficiaries must include any taxable distributions they receive in their gross income.” What about inherited Roth IRAs? They are subject to the same RMD requirements as inherited traditional IRA accounts, except that the withdrawals are income tax free.

Many of our Geyer Law estate planning clients name minor children (either their minor children or perhaps grandchildren), as their IRA beneficiaries. The child has until the age of majority (21) for the ten year window of withdrawals to even begin. From that point, there is no requirement for the IRA inheritor to take annual withdrawals, so long as the account is depleted by the end of the tenth year.

At our Indiana law firm, we often host (either virtually or in-person) family meetings where clients can openly share with loved ones the values and assumptions underlying legacy plans, including the importance of staying up to date on the changing tax rules on inherited IRA accounts. Minor or adult, your named IRA beneficiary may be in need of an instruction manual!

– by Rebecca W. Geyer