Question:Ed,My client recently passed away at the age of 86 and the beneficiaries were his twin grandchildren who are six years old. Does their 10-year clock to withdraw the funds start right away, or can they wait until they are 18 years old to start their 10-year clock to withdraw the funds?
Question:We had a client who died with no beneficiaries on his $500k 401(k). He wasn’t married and only 45 years old. His parents are disclaiming rights to the inheritance, so it’s going to his siblings. Is there any way these two siblings can stretch the retirement account into an inherited IRA? If so, what does that look like?Thanks,PatrickAnswer:Hi Patrick,The siblings may still be able to use the stretch even after the SECURE Act eliminated it for most beneficiaries.
A significant percentage of IRA assets will ultimately go to nonspouse beneficiaries. When these beneficiaries inherit the funds, special rules kick in. Inherited IRAs are not like other IRA accounts. Here is what you need to know if you inherited an IRA from someone who is not your spouse:1. You should consider all your options before doing anything with your inherited IRA. If you inherit an IRA, you need to move cautiously. You have time to make decisions, so don’t rush. You will want to notify the IRA custodian of the death of the IRA owner if that has not already happened.
Last year the SECURE Act became law and eliminated the stretch IRA for millions of IRA beneficiaries. However, for some IRA beneficiaries the stretch lives on.For most beneficiaries, the stretch is now replaced with a ten-year payout period. Beginning for deaths in 2020, the ten-year rule will apply to designated beneficiaries who are not eligible designated beneficiaries under the SECURE Act. Eligible designated beneficiaries include spouses, minor children of the IRA owner, chronically ill and disabled individuals and beneficiaries who are not more than ten years younger than the IRA owner.
Did you inherit an IRA from someone who is NOT your spouse? This is not uncommon. Maybe you inherited from a sibling or a parent or a friend. If this is your situation, you will want to proceed with caution. For nonspouse beneficiaries a wrong move can result in disastrous consequences. So, take your time and do it right.Step one is to carefully explore your options. What are a nonspouse beneficiary’s options when it comes to the inherited IRA?Under the tax code, nonspouse beneficiaries can take advantage of the “stretch” IRA. This means you can set up a properly titled inherited IRA and then take required minimum distributions (RMD)s based on your life expectancy.
Prior to 2002, a default option for paying out required minimum distributions from an inherited IRA to a beneficiary was the 5-year rule. If the IRA owner died before their required beginning date and an election was not made in a timely manner, the account had to be closed by December 31 of the 5th year following the year of death. In 2002, new regulations issued by the IRS changed the default payout to the life expectancy of the designated beneficiary. The 5-year requirement for most beneficiaries was eliminated.
This week's Slott Report Mailbag looks into inherited IRAs, calculating RMDs, and 60-day rollovers.
This edition of the Slott Report Mailbag (one of two consumer mailbags this week!) examines how to name contingent beneficiaries, looks at the misconceptions of "taxable income" and answers a reader's question about contributing to an IRA on his wife's behalf.
This week's Slott Report Mailbag looks at whether required minimum distributions can be used as a qualification for a Roth IRA contribution and dissects a situation involving the Roth recharacterization process.
We are down to the last two months of the year. It is time for those who have required minimum distributions (RMDs) from a retirement plan to make sure that those distributions are taken. Following is a list of those who have required distributions for the year.
