Beneficiary IRA Non Taxable Amount
Our client is the beneficiary of a 401A that has $220k pretax and $46,000 of non taxable funds in the 401A. How do they inherit this and what are the RMD rules? We know that she has to take an RMD on the pre tax funds. What are the rules on the $46k? Does she have to take an RMD? Thanks.
Permalink Submitted by Alan - IRA critic on Tue, 2022-09-13 18:18
The RMD applies to the entire plan balance. Is client a non spouse beneficiary who was designated on the plan? When did the plan owner pass and did they pass prior to their RBD or after? Depending on these details, client may be able to do a direct rollover of the 46k to an inherited Roth IRA, and the rest to an inherited TIRA account. Client may be subject to the 10 year rule or could be an eligible designated beneficiary. Can be specific if you can provide the requested info.
Permalink Submitted by Ryan Smith on Tue, 2022-09-13 18:36
She was within 10 years of her brother, so she has been identified as an Eligible Beneficiary. The owner of the account was taking RMDs as he was over 72. So yes client was a non spouse beneficiary. Owner passed in 2021 and took RMD in 2021.
Permalink Submitted by Alan - IRA critic on Tue, 2022-09-13 20:10
OK, as an EDB she can take LE RMDs starting in 2022 using the new tables. The 2022 RMD will be partially non taxable. Once this beneficiary RMD is completed, two direct rollovers should be made. The remaining non taxable amount should be directly rolled into an inherited Roth IRA and the remainder into an inherited TIRA. From both of these inherited IRAs, she will have to take beneficiary RMDs based on her attained age in 2022. However, the inherited Roth RMDs will be non taxable if she does not exceed the annual RMD for the first 5 years.
Permalink Submitted by Ryan Smith on Wed, 2022-09-14 10:26
Ok thank you, interesting 5 year rule on the Roth IRA.