During 2024, the IRS issued final guidance for individuals who inherited IRAs after December 31,2019, explaining the rules for inherited IRA required minimum distributions (RMDs). The first inherited traditional IRA RMD is due by December 31, 2025. Depending on the value of the inherited IRA, the RMD can be sizeable and usually the entire RMD will be included in the inheritor’s taxable income. This additional taxable income could result in the inheritor being pushed into a higher federal and state marginal tax bracket..
Under one of the provisions coming out of the SECURE Act passed in December 2019, most individuals (in particular, non-eligible designated beneficiaries which include adult children and other relatives who are more than 10 years younger than the deceased traditional IRA owner) who inherited IRAs after December 31,2019 have to withdraw the entire amount of the inherited IRA within 10 years following the year of the original traditional IRA owner’s death. Those individuals who inherited traditional IRAs from traditional IRA owner who had reached their “required beginning date” (RBD) (and therefore subject to RMDs themselves) have to take annual minimum payouts in years one through nine and empty the inherited traditional IRA in year 10.
The IRS had delayed enforcing annual inherited IRA RMDs until 2025. As a result, no inherited IRA RMDs were required for the years 2021 through 2024. However, the fact that a non-spousal traditional IRA beneficiary has not taken RMDs for the years 2021- 2024 does not change the rule that the beneficiary must withdraw the entire amount of the inherited IRA within 10 years following the year of the original IRA owner’s death.
Non-spousal beneficiaries who inherited IRAs before January 1,2020 can use the old inherited traditional IRA rules, which allow IRA beneficiaries to stretch out distributions over their life expectancy. Stretching out the IRA distributions over an IRA inheritor’s life expectancy will most likely lessen the federal and state income tax liabilities
According to some financial advisors, many IRA inheritors are failing to take their RMDs, not taking the right RMD amount, or taking money from the wrong account. The IRS can assess a penalty of 25 percent of the annual RMD amount that should have been withdrawn.
Inherited IRA custodians will typically advise inherited IRA beneficiaries to talk to their tax advisors and seek advice on RMDs. Some advisers will in turn advise traditional IRA inheritors to go to a financial planner for guidance. This “runaround” can be frustrating and maddening for traditional IRA inheritors.
Some Considerations on How to Take Inherited IRA RMDs
RMDs are based on a formula that takes into account the IRA balance and the age of the IRS beneficiary. The best strategy for handling inherited IRA RMDs will depends on the size (value) of the inherited IRA, the type of IRA (traditional or Roth) and the person’s personal tax situations. For inherited traditional IRAs, whose distributions are taxable, those beneficiaries who take only the annual RMD face a balloon payment at the end of the 10th year following the death of the original IRA owner.
The balloon payment could push the IRA beneficiary into a higher marginal tax bracket in the 10th year. For that reason, traditional IRA inheritors are advised to withdraw each year more than the RMD.
On the other hand, those individuals who inherit Roth IRAs are not subject to RMDs during the 10-year period. Inherited Roth IRA distributions are income tax-free. Roth IRAs potentially grow tax-free over time. As a result, Roth IRA beneficiaries are advised to delay taking distribution until they have to which is at the end of the 10th year following the year that the Roth IRA owner dies.
Those traditional IRA inheritors who are younger in their 20’s or early 30’s may want to consider also taking larger withdrawals (more than the RMD) to coincide with the years when they are in a lower marginal tax bracket. For example, when they start their first job after college. That is especially important for children whose investment income, which includes IRA distributions, is subject to the “kiddie tax” at their parents’ tax rate. That can apply until age 23 if the child is a full-time student.
Those traditional IRA inheritors who are older face other challenges. They might also have to factor in taking money out of their traditional IRAs when they reach their “required beginning date” (currently age 73), which come with another set of rules. Older traditional IRA inheritors may still be working, earning large salaries with sizeable investment income. Inherited traditional IRA RMDs could push the inheritor into a higher federal and state marginal tax bracket. .
Calculating RMDs for non-spousal traditional IRA inheritors
The calculation of RMDs for non-spouse traditional IRA inheritors will depend on when the traditional IRA owner died, namely before or after his or her required beginning date (RBD). The following table presents RBDs according to the traditional IRA owner’s death of birth :
Required Beginning Date (RBD)
| April 1 Following the Year the Traditional IRA Becomes Age……… |
Traditional IRA Owner Birth Date: |
| 70.5
72 73 75 |
Before 7/1/1949
7/1/1949 – 12/31/1950 1/1/1951 – 12/31/1958 On or after 1/1/1959 |
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Calculating the RMD of a non-spouse traditional IRA inheritor when the traditional IRA owner died before his or her RBD
If the non-spouse traditional IRA inheritor is a “non-eligible designated beneficiary” (such as an adult child) then the inherited IRA must be distributed entirely by the end of the 10th year following the year of the traditional IRA owner’s death. For the first year RMD, the year following the death of the IRA owner, the RMD is calculated by dividing the IRA balance as of December 31 of the year the owner died by the life expectancy factor of the traditional IRA inheritor in the year following the death of the IRA owner. The single life expectancy is obtained from the Single Life Expectancy Table (Table 1 of Appendix B in IRS Publication 590-B). Succeeding years, RMDs in years two through nine are calculated similarly, using the IRA account balance of December 31 of the previous year divided by the life expectancy factor. The life expectancy factor for each successive year is reduced by 1.0 for each year past the first year RMD. The following example illustrates:
Example 1. Charlotte passed away in 2022 at the age of 66. Her daughter Diane is the sole beneficiary of Charlotte’s traditional IRA. Diane was age 42 when Charlotte died and Diane has not taken any distributions from her inherited traditional IRA since Charlotte’s passing. Diane must take her first inherited traditional IRA RMD by December 31, 2025. The following information is used to calculate Diane’s 2025 inherited IRA RMD:
(1) Inherited IRA balance as of 12/31/2024: $234,500
Diane’s life expectancy in 2023, the year after Charlotte died
and Diane was age 43: 42.9
(2) Subtract two years from 42.9 ÷ 40.9
Diane’s 2025 inherited traditional IRA RMD [(1)/(2] $5,733.50
Note the following:
- For the 2026 inherited IRA RMD, Diane will use the December 31,2025 inherited traditional IRA balance divided by a life expectancy factor of 39.9.
- For the years 2027, 2028, 2029, 2030 and 2031, Diane will compute the annual RMD similarly using the inherited IRA balance as of December 31 of the previous year divided by the life expectancy factor, reduced by 1 from the previous year.
- Diane must withdraw the entire remaining balance of the inherited IRA by December 31, 2032, the end of the tenth year following the year of Charlotte’s death.
Calculating the RMD of a non-spouse traditional IRA inheritor when the traditional IRA owner dies on or after the RBD
If the traditional IRA owner died on or after his or her RBD, then the RMD for the year of death is computed as if the owner were alive. RMDs must continue each year thereafter. The traditional IRA inheritor must take a traditional IRA RMD, starting the year after the death of the traditional IRA owner. Each year, the RMD is calculated using December 31 of the previous year inherited traditional IRA account balance divided by a life expectancy factor. The life expectancy factor is from the Single Life Expectancy Table (Table 1 of Appendix B in IRS Publication 590-B using the inheritor’s age at the end of the year following the traditional IRA account owner’s death. The distribution period is reduced by one for each year that has elapsed. The following example illustrates:
Example 2. Frank died in 2024 at the age of 76. Fran’s granddaughter Elizabeth age 30 is the sole beneficiary of Frank’s traditional IRA.
Elizabeth’s inherited traditional IRA RMD for the years 2025 through 2028 are computed as follows:
2025: December 31,2024 inherited traditional IRA account balance/55.3
2026: December 31,2025 inherited traditional IRA account balance/54.3
2027: December 31,2026 inherited traditional IRA account balance/53.3
2028: December 31,2027 inherited traditional IRA account balance/52.3
Edward A. Zurndorfer is a CERTIFIED FINANCIAL PLANNER™ professional, Chartered Life Underwriter, Chartered Financial Consultant, Chartered Federal Employee Benefits Consultant, Certified Employees Benefits Specialist and IRS Enrolled Agent in Silver Spring, MD. Tax planning, Federal employee benefits, retirement and insurance consulting services offered through EZ Accounting and Financial Services, and EZ Federal Benefits Seminars, located at 833 Bromley Street - Suite A, Silver Spring, MD 20902-3019 and telephone number 301-681-1652. Raymond James is not affiliated with and does not endorse the opinions or services of Edward A. Zurndorfer or EZ Accounting and Financial Services. The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete. While we are familiar with the tax provisions of the issues presented herein, as Financial Advisors of RJFS, we are not qualified to render advice on tax or legal matters. You should discuss tax or legal matters with the appropriate professional.
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Edward A. Zurndorfer is a CERTIFIED FINANCIAL PLANNER™ professional, Chartered Life Underwriter, Chartered Financial Consultant, Chartered Federal Employee Benefits Consultant, Certified Employees Benefits Specialist and IRS Enrolled Agent in Silver Spring, MD. Tax planning, Federal employee benefits, retirement and insurance consulting services offered through EZ Accounting and Financial Services, and EZ Federal Benefits Seminars, located at 833 Bromley Street - Suite A, Silver Spring, MD 20902-3019 and telephone number 301-681-1652. Raymond James is not affiliated with and does not endorse the opinions or services of Edward A. Zurndorfer or EZ Accounting and Financial Services. The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete. While we are familiar with the tax provisions of the issues presented herein, as Financial Advisors of RJFS, we are not qualified to render advice on tax or legal matters. You should discuss tax or legal matters with the appropriate professional.