Do I have to take an RMD from my Inherited IRA in 2024 or can I wait until 2025?

Kurisu
Kurisu Member Posts: 3 Newcomer
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I have heard that rules have changed and I may be required to take an RMD this year or face a 25% penalty. The IRA Custodian provides estimates for RMDs that I should take in 2024 (and RMDs for 2023 and 2022 that I hopefully didn't miss already.) However, when I looked more closely, there is an assumption that the "RMD calculations are based on rules for IRAs inherited in 2019 or before." In that case, whether I have to take the RMD this year or next year, I will have to figure out how to calculate the RMD myself and I have no clue.😵

The original owner of the IRAs passed on 1/13/2020. I waited until about 1/11/2021 to have the IRAs rolled over to me. There were two IRAs and they were combined into one Inherited IRA. While trying to figure out what to do, I keep running into the question of "inherited timely" or "did not inherit timely" too. Did I inherit timely? Assuming I can take the first RMD next year, I have a little more time to figure out how to calculate that RMD. If I already missed the RMDs that are shown for 2023 and 2022, what should I do?

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Answers

  • Kurisu
    Kurisu Member Posts: 3 Newcomer

    Or maybe I can take out however much I want until 2030 or 2031?

    This IRS resource that I found in another post suggest that may be the case: https://www.irs.gov/retirement-plans/plan-participant-employee/retirement-topics-beneficiary

    Non-spouse beneficiary options

    In 2020 and later, options for a beneficiary who is not the spouse of the deceased account owner depend on whether they are an "eligible designated beneficiary."

    …

    Designated beneficiary (not an eligible designated beneficiary)

    • Follow the 10-year rule

    I'm not entirely sure what the "10-year rule" is, but it's a start. Maybe.

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  • MatthewD
    MatthewD FreeTaxUSA Team Posts: 340

    Hello Kurisu,

    Whether you take an RMD from an Inherited IRA in 2024 depends on 3 things.

    1. The original owner was already taking the RMD. You need to take an RMD by 2025.
    2. If the original owner had not reached RMD age (73 years old), you will need to start taking RMDs by 2025.
    3. If you inherited the IRA in 2023, you have a waiver until 2025.

    The 10-year rule does not apply to the RMD, but you must empty the IRA in 10 years. So you need to take some each year and empty the IRA in ten years, reporting it as taxable income.

    Learn more here:

    https://www.irs.gov/retirement-plans/retirement-plan-and-ira-required-minimum-distributions-faqs

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  • Kurisu
    Kurisu Member Posts: 3 Newcomer

    Thank you, MatthewD.

    If I may clarify, taking an RMD "by 2025" means to take an RMD by Dec 31, 2025? Or does it mean before Jan 01, 2025?

    1. The original owner was my father and I don't know if he had already taken an RMD from either of the two IRA accounts he had.
    2. He was 72 when he died in January 2020. He would have been 73 in July 2020. That might explain why there was an RMD required by the end of 2020 for one of IRAs, but I didn't have to take the RMD because of Covid-related exception or something that year.
    3. If I inherited the IRA in 2021, did I already miss some of the RMDs?

    The other beneficiaries, including the spouse, took their portion as a lump sum cash payout in 2020. Does that affect my RMD calculations?

    Up until this year when the new rules for RMDs from Inherited IRAs came out, I had been following advice that I had to empty the IRA within 10 years of the original owner's death, even if it meant waiting until the 10th year and withdrawing the entire balance. That sounds like the "10-year rule" and maybe I misunderstood it or the RMD part is what is new. 🤔

    I think this is starting to make a little more sense. Now, in addition to emptying the IRA within 10 years, I also have to start taking an RMD each year. That means the problem becomes figuring out how much the RMD should be and I assume that taking less than the minimum carries the same consequences as not taking a distribution at all.

    In any case, if I don't have to worry about it this year, but have to figure out how much the RMD needs to be for next year, would that be something FreeTaxUSA Deluxe or Pro Support could help me with while I am filing my 2024 tax return? Also, could one of those support options help me figure out if I might have already missed RMDs, and if so, how to minimize the damage?

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  • MatthewD
    MatthewD FreeTaxUSA Team Posts: 340

    Hi Kurisu,

    Thank you for the additional information.

    1. Q: If I inherited the IRA in 2021, did I already miss some of the RMDs? A: From my research, the regulations don't take place until 2025. The IRS know the transition has been confusing and provided a grace period.
    2. Q: other beneficiaries, including the spouse, took their portion as a lump sum cash payout in 2020. Does that affect my RMD calculations? A: No, your RMD is based on the amount in your account that belongs to you. You may use this IRS link to get a worksheet. https://www.irs.gov/retirement-plans/plan-participant-employee/required-minimum-distribution-worksheets
    3. The "10-year rule" could potentially work like that, however, you have to implement the RMD rule when it applies to you. In the year following the account owner's death, an RMD is due in the amount the account owner would have been required to withdraw. You have a grace period until 2025. The IRS has provided two dates. April 1 and by December 31.
    4. You have the right idea. You have the ten-year rule and the RMD you need to work on. Work with your retirement administrator to take enough out each year so it is depleted in ten years.
    5. Pro Support cannot do the calculations for you, but we can assist you in finding the right worksheets. The best thing to do is get assistance from your Retirement Account Admin.

    Good luck and thank you for asking the questions.

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