78: The Essential Rules to Know When You Inherit an IRA

“The account you inherit as far as the IRS is concerned, it's not your retirement account. You are just receiving the money from it. It's still the original owner's retirement account.”

 

Have you ever considered the complexities that come with inheriting retirement accounts? They can be a minefield of rules and regulations that, if not handled with care, can result in irreversible mistakes. Our hosts Stephanie McCullough and Kevin Gaines untangle these complex rules, shedding light on the importance of paying attention when dealing with inherited accounts. Because once that money is taken out, it doesn't go back in. They also look at how the rules change when the original contributor has started their required distributions.

 

Did you know that spouses have a unique privilege when inheriting retirement accounts? They can transfer the accounts into their own and take full ownership. But like everything else in life, there are rules to follow.

 

And then comes the all-important matter of tax considerations. From the repercussions of not emptying the account within ten years to the importance of naming your own beneficiaries, and the complications that arise when inheriting an inherited IRA - Stephanie and Kevin cover it all. That said, it’s important to remember that each situation is unique and requires specific guidance.

 

Under the SECURE Act, there are now 3 kinds of retirement plan beneficiaries for determining post-death payouts after 2019:

 

1. Non-Designated Beneficiary (NDB)

These are not people.

Examples: Estate, charity or non-qualifying trust (non-look through trust)         

 

2. Non-Eligible Designated Beneficiary (NEDB)

 All designated beneficiaries who do not qualify as EDBs (see #3 below).

Examples: grandchildren, older children, some look-through trusts

 

3. Eligible Designated Beneficiary (EDB)

The SECURE Act exempts these beneficiaries from the 10-year rule. However, if the account owner dies before the RBD, an EDB can elect the 10-year rule.

EDBs must be designated beneficiaries.

 

5 Classes of Eligible Designated Beneficiaries:

1. Surviving spouses
2. Minor children of the account owner, until age 21 - but not grandchildren
3. Disabled individuals – under the strict IRS rules
4. Chronically ill individuals
5. Individuals not more than 10 years younger than the IRA owner. (Those older than the IRA owner also qualify.)

 

SECURE Act Videos Here

 

 

Key Topics:

• Inheriting an IRA or Another Type of Retirement Account (02:00)
• Unique Rules of Inherited Accounts (05:31)
• Inherited IRA Rules and Options for Spouses and Non-Spouses (10:26)
• IRA Inheritance Rules and RMDs (15:49)
• The 10-Year Rule (20:52)
• Inherited Retirement Accounts and Potential Pitfalls (30:34)
• Wrap-Up (31:00)

 

 

 

Resources:

• Take Back Retirements Episodes:
• 12: What Women Need to Know About IRA’s, with Sarah Brenner
• 18: How Do We Prepare for the Worst? with Mary Beth Simón
• 20: Women + Roth IRA’s – What Should You Be Aware Of?
• 40: What Women Need to Know About Income Tax
• 58: Secure Act 2.0: New Retirement Account Rules, Same Old Message!

 

 

 

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You can find the transcript and more information about this episode at www.takebackretirement.com.

 

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