Inherited IRA – RMD vs. 5-year payout
What determines whether the person that inherits the IRA can just take the RMD over their life expectancy or if they need to distribute the Inherited IRA fully over 5 years?
What determines whether the person that inherits the IRA can just take the RMD over their life expectancy or if they need to distribute the Inherited IRA fully over 5 years?
Permalink Submitted by Terrence Herr on Mon, 2014-12-01 18:27
Choice. a beneficiary such as a child can elect to stretch it out (Take RMDs) over their lifetime, take a lump sum, or take payouts over a period of time (such as 5 years) or at an annual payout level (which can vary) as long as it is equal to or more than the RMD. Note the account needs to be retitled as a beneficiary IRA.
Permalink Submitted by Michael Steranka on Mon, 2014-12-01 18:34
Thanks! That is what I thought but one of our clients was saying that they were being told they had to distribute it over 5 years. The client inherited the IRA from her father so she would be be able to stretch it. What about if the beneficiary is a non-relative?
Permalink Submitted by Alan - IRA critic on Mon, 2014-12-01 21:08
An individual beneficiary (related or not) can stretch the inherited IRA. A non individual beneficiary such as an estate or non qualified trust must use the 5 year rule if the owner passed prior to the required beginning date. There are other rules as well, such as the separate account rules that state if there is more than one individual beneficiary, the age of the oldest will apply unless separate inherited IRA accounts are created by the end of the year following the year of owner’s death.