Inherited IRA question

Submitted by Carrie Baeten on Tue, 2023-12-12 18:10

I have a 68 year old woman who had an IRA and passed away this year. She was not doing rmds.

Can you tell me the following:
1) husband is 77. If he transfers it into an inherited IRA this year yet, does he need to do a RMD on this?
2) If so, can we wait till next year and transfer it to him then and then have him start the rmd?
3) The RMD would be based on his current age, correct?

Thanks,
Carrie



Submitted by Alan - IRA critic on Tue, 2023-12-12 19:10

  1. No
  2. If he maintains the inherited IRA, there are no beneficiary RMDs required until the year his wife would have reached age 73. But due to his age, the Secure Act Regs do not allow him to assume ownership later than 12/31/2024. He would have to take a distribution after that date and do a 60 day rollover to his own IRA. Since he could only roll over the amount in excess of the beneficiary RMD in that year and beneficiary RMDs are higher than his own IRA, he should take a distribution in the year wife would have been 72 and roll all of it over to his own IRA. There would be no RMD that year, and in the following year he would use the Uniform Table which produces a lower RMD than if he continued as beneficiary. 
  3. If he is going to need distributions of at least the amount of a Uniform Table RMD each year, then he might simplify things by electing to assume ownership now or early in 2024. He will have a Uniform Table RMD for 2024 and beyond but this would eliminate future concerns of when and how to take ownership of the inherited IRA.
  4. He might also consider an incremental conversion from the inherited IRA before year end since this is the last year he can file jointly. In future years of filing single his marginal rate will likely increase. He can also convert the full amount he withdraws from the inherited IRA since none of the distribution is an RMD. A conversion will also reduce his IRA balance in the future and therefore will reduce future RMDs.
  5. In summary, the action selected should be driven by how much he would withdraw if there were no RMDs required since if he really wants to delay RMDs as long as possible, he can simply keep this in beneficiary form until the year spouse would have reached 73.

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