Inherited IRA from 59 year old son, mother in her 80s

Submitted by Lisa Hoffman on Fri, 2024-08-09 18:06

My mother, aged 86yrs, inherited my brother’s IRA. He died in 2022 at 59years, before needing to take RMDs. I’ve had a difficult time finding information on individuals who are older than the person who died. Does the 10 year rule apply in this case? If so, I understand she must deplete by the end of 10years & if so, does she need to take RMDs each year? (I also understand the Slott recommendation is generally to ignore the 10yr rule & take out more & pay more taxes sooner. But is this still the case for someone who is 87yrs old? From his book, I understood that some suggestions – like converting IRAs to ROTH IRAs don’t apply to her because of her age.)



Submitted by Alan - IRA critic on Fri, 2024-08-09 18:57

Because brother passed prior to RBD, mother has a choice of the two options below:

She is an EDB and can take life expectancy RMDs, but since her single LE is less than 8 years starting in 2023, the account would be drained in 2030. Her beneficiary would have to continue her RMD schedule and would not get any additional years and even though her beneficiary would otherwise get 10 years, the IRA will not last that long due to mother’s age.
She could opt out of EDB treatment and into the 10 year rule. That would eliminate any RMDs in years 1-9 which would have spread the taxes, so if she took no distributions and lived until year 10 there would be a taxable full distribution in that year (2032). If she did not survive until 2032 her beneficiary would also have to drain the account by 2032. Therefore, the 10 year rule would only add 2 years to the life of the inherited IRA.
In either case, she can take any distributions as she needs them, so the best choice depends on her overall need for funds and her tax situation.

Submitted by Lisa Hoffman on Fri, 2024-08-09 19:31

Thank you so much for your response.

Actually, I meant he died in 2023. (I assume that pushes the drain deadlines to 2031 & 2033 respectively?)

Just to clarify, in Option #1, she must take RMDs yearly & in Option #2 she can take them on any schedule or wait until the end?

With regards to the 2 options, does she need to indicate to the financial holding institution which option she plans to take?

At this point, it seems unlikely she’ll need these unexpected funds.

 

 

 

 

Submitted by Alan - IRA critic on Fri, 2024-08-09 19:42

Yes, 2031 and 2033.

Option 1 which is automatic requires annual beneficiary RMDs starting in 2024. No notification is required.

Option 2 must be chosen with a notification to the IRA custodian that beneficiary is opting out of EDB treatment, and this notification would have to be submitted before the end of 2024. If she chooses this option, there are no annual RMDs required, just the 10 year rule. But if she needs a distribution she can still take it. Either her or her beneficiary would have to drain the inherited IRA by the end of 2033. If the remaining balance is large, one of them will have a large tax bill for 2033.

 

Submitted by Lisa Hoffman on Fri, 2024-08-09 20:01

Thank you so much. If I can ask one more question:

I also have an inheritedIRA – I rolled over his 401(k)  I was 57 at the time of his death. I understand I’m an EDB too.

Do I have 2 options as well?

#1) I can take out distributions starting at aged 73years? And at that time, I need to calculate my LE? Or I can take them out of any size at any time?

32) I can start taking them now if I forgo the EDB designation too? I don’t need the funds but taking them sooner than later & spreading them out may be the best option to reduce my tax burden.

Submitted by Lisa Hoffman on Fri, 2024-08-09 20:12

Oh, I see your response to someone else:

+++++++++++++++

Can an EDB use the ten year rule instead of the RMD stretch, and if so, how is this option selected?

permalink Submitted by Alan – IRA critic on Tue, 2024-08-06 11:38

Yes, but only if the account owner passed prior to RBD. The beneficiary would advise the IRA custodian before the end of the year following the year of death that they are opting out of EDB treatment and into the 10 year rule. They would then have no annual RMDs until year 10. Note that this election is irrevocable.

Submitted by Alan - IRA critic on Fri, 2024-08-09 20:50

You also have the 2 options.

As an EDB your annual RMDs must start this year, they cannot wait until the decedent would have reached 73, as that option only applies to a sole spouse beneficiary. If your age at the end of this year is 58 your 2024 divisor (and the # of years that the inherited IRA could last would be 28.9 years. It probably would not make sense for you to opt out of EDB treatment and into the 10 year rule unless you want to drain the inherited IRA by 2033 or perhaps not have any annual RMD before then.

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