Inherited IRA’s

Submitted by Greg Pierce on Tue, 2018-05-01 16:17

I have the official IRS table of RMD Divisors for Inherited IRAs and understand that you start with the rate corresponding to the age of the person inheriting the IRA for the first year calculation. I further understand that in subsequent years you subtract 1 from the prior years number (as opposed to using the number opposite the higher age.) This results in more rapid depletion of the account.

Using as an example the age of 38 and Divisor of 46.5, it is apparent to me that the divisor hits zero and the account is completely depleted by the age of 84. I tested several other ages and gotten similar results.

Can you confirm my understanding? Do you have a recommendation to persons who hold Inherited IRAs and who expect to live far beyond age 84?



Submitted by Alan - IRA critic on Tue, 2018-05-01 18:20

  • Your understanding is correct. It is possible to outlive an inherited IRA if you live long enough, but you could not outlive an owned IRA. A beneficiary in your example with no other income or assets would have to save some of each year’s RMD and invest that amount in order to still have savings after age 84.
  • Another possibility is that if the person has earned income but is not maxing out their current retirement savings, they could increase their current retirement balances by taking out larger amounts from the inherited IRA. The tax savings from the new contributions might offset the taxes from the higher inherited IRA distributions. Essentially this would shift money from the inherited IRA that must be drawn down faster to their own accounts that have RMDs much lower and will last until age 115.

Submitted by Aaron Lieberman on Sat, 2018-05-05 20:04

Is there any additional issues with this?  For example, does the account have to be titled differently since it is a minor child and then changed when they become of age?Thanks, Aaron

Submitted by Alan - IRA critic on Sat, 2018-05-05 21:18

Generally, an UGMA account for the minor should have been named as beneficiary, otherwise there will have to be a court appointed guardian to receive the RMDs or other distributions. A trust for the minor is another option. The UGMA account would be dissolved upon reaching the age of majority. The kiddie tax is an issue when a minor inherits since inherited IRA distributions are considered investment income.

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