Options for Inheriting Mom’s IRA

Submitted by Alice Severson on Mon, 2024-09-16 06:26

Hello. My mom passed away 3 months ago, and I finally have the wherewithal to start dealing with her finances.
I am trying to figure out my options with my mom’s $250K IRA.
Background:
  • Mom was 89 years old.
  • She withdrew her 2024 RMD before her passing.
  • Mom’s IRA includes money originally deposited into her IRA plus money transferred from my dad’s IRA upon his passing 5 years ago in 2019.
  • I am 52 years old, not disabled and not chronically ill.
  • I am the sole beneficiary on my mom’s IRA.
  • I do not want a lump sum distribution from my mom’s IRA.
My understanding is that mom’s IRA is still considered a Traditional IRA and not an Inherited IRA (even though it includes money inherited from dad’s IRA) because she received dad’s IRA in 2019 as a spouse.
Is my only option to open an Inherited IRA, after which I’ll withdraw the RMD in years 1 through 9, and finally withdraw the remaining balance by December 31 of year 10?
Is there a backdoor Roth IRA option available? In case it makes a difference, I have not had any earned income in the past few years due to taking care of my mom full-time during her illness, and at this point, I consider myself retired, so I’m unlikely to have earned income in the future.
Thank you in advance for your guidance.
Alice


Submitted by Alan - IRA critic on Mon, 2024-09-16 11:13

Sorry to hear of your loss and thank you for the thorough background info on her IRA.

You are correct that you are subject to the 10 year rule with annual RMDs in years 1-9 calculated using your single life expectancy divisor based on your age at your birthday in 2025. You then would reduce that divisor by 1.0 each year thereafter.

Taking out just the RMD each year will still leave you with a much larger distribution in 2034 than for the RMD years. Therefore, in order to avoid a large tax bill in 2034, you might consider taking out 1/10 of the balance in 2025, 1/9 in 2026, 1/8 in 2027 etc. These distributions will exceed the RMD and not leave you with a much larger amount to distribute in 2034.

The IRA custodian will need a death certificate for Mom and all your contact info including SSN to establish an inherited IRA for you as beneficiary of Mom. Be sure to name your own beneficiary on this inherited IRA.

Finally, if Mom had any basis in the IRA that she might have inherited, her recent tax returns should include Form 8606 and a portion of her RMDs would have been tax free. You would also inherit the basis remaining on her 2024 8606 which would make a portion of your distributions tax free.

Submitted by Alice Severson on Mon, 2024-09-16 23:25

Thank you so much for the detailed explanations and recommendations, Alan. This helps me tremendously.

I left myself a reminder to ensure I assign beneficiaries, as well as utilize the distribution fractions you suggested. I also confirmed that my mom did not have any basis in her IRA.

I contacted Vanguard after receiving your reply and started the inheritance process. Fortunately, it’s much more automated than 5 years ago when I worked with them on my dad’s accounts.

By the way, you helped my mom and me 5 years ago when we were researching options for my dad’s 401(k) after he passed away. You patiently answered our numerous questions and provided us with a ton of helpful information, which enabled us to make the best financial decision. I remember how grateful mom and I were for your guidance, especially as we felt so lost after my dad’s unexpected passing.

Thank you for helping me once again. I am grateful.

Alice

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