Inherited IRA

[lindadod0626]

Client inherited a traditional IRA from her husband, who was age 38 at the time of his death in 2005.  She has received notification from the investment company that she should have been taking RMDs and that now she will owe a hefty penalty.  She asked about a stretch IRA, but it's my understanding that that applies to non-spousal beneficiaries.  In my research, I found this table https://www.irs.gov/retirement-plans/required-minimum-distributions-for-ira-beneficiaries , and it seems to say that because he was well below the required age for an RMD, she will have to start RMDs when he would have turned 70.5.  But because the investment company has said otherwise, I'm concerned I am missing something.  If so, can you help?  Thanks for any advice you can give me, and best wishes for a happy holiday.  

[Terry53029 · Accepted solution]

Here are the options for a spouse. It will depend on what option she chose at the time of her husbands death.

Death of the account holder occurred before 2020

Spousal beneficiary options

If the death of the account holder occurred prior to the required beginning date, the spousal beneficiary's options are:

• Keep as an inherited account
  • Take distributions based on their own life expectancy, or
  • Follow the 5-year rule
• Rollover the account into their own IRA

[lindadod0626]

Thank you!  Happy holidays!  

[rbynaker]

I guess I shouldn't be, but I'm a bit shocked by how much conflicting information there is out there.  The rules changed then the rules got clarified then there were exceptions to the clarified rules.  AFAIK, since the death occurred before the SECURE Act was passed, we go back to the old rules.  For plain language, that's Pub 590-B from 2019:

https://www.irs.gov/pub/irs-prior/p590b--2019.pdf

This IRS source gives conflicting information than what Terry posted.  I think the "new" information that Terry posted is incomplete and the rules in the old Pub 590 are correct.  I could be wrong but the SECURE Act specifically stated that the new rules only apply to deaths after 12/31/19.  This stuff makes my head spin, but the 590B info matches all of the old TaxBooks I could put my fingers on.

The first step though (as Terry pointed out), is what did the spouse choose to do with the inherited IRA?  If it's treated as her own then we can throw all of the inherited IRA rules out the window, it's just another one of her IRAs.  Job done.

If it's treated as an Inherited IRA then we're looking at page 9 of the PDF.  Thanks for including his age since that's highly relevant.  From the bottom of column 1 and into column 2:

Special rules for surviving spouse. If the owner died
before his or her required beginning date and the surviv-
ing spouse is the sole designated beneficiary, the follow-
ing rules apply.

Year of first required distribution. If the owner died
before the year in which he or she reached age 70 1/2, dis-
tributions to the spouse don't need to begin until the year
in which the owner would have reached age 70 1/2.

IMO there are no RMDs until at least 2037.

I've avoiding reading SECURE Act 2 until it actually passes both halves of Congress but I bet that will add even more fun.

Rick

[Terry53029]

@rbynaker  @lindadod0626  here is link for my info. It includes links

[rbynaker]

@Terry53029 I don't see the link but I assume it was a copy/paste from this:

https://www.irs.gov/retirement-plans/plan-participant-employee/retirement-topics-beneficiary

For whatever reason, this site does not include the spousal exception from the old rules.

[Terry53029]

That is the correct site, don't know why it was left out, probably my error 😑 

[lindadod0626]

Me again.  What about the five-year rule?  I'm having a hard time figuring out whether it comes into play here.  I assume it matters whether my client inherited the account directly or whether the estate was the beneficiary.  I'm trying to clarify that with her, as I might have made an incorrect assumption.