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New Inherited IRA Withdrawal Rules

Inherited retirement accounts are becoming more common as we see generational wealth passing to loved ones. The options for dealing with inherited IRAs can seem overwhelming. Additional guidance may be needed for new inherited IRAs. Rules from the SECURE Act and SECURE 2.0 Act would apply to inherited IRAs where the IRA account holder dies after 2022. Schwab has detailed scenarios that can be reviewed here.

Qualifying questions should be raised to determine the best guidance for our clients:

  1. What type of beneficiary will this be?

2. What type of IRA is involved?

3. Did the account holder die after their required beginning date to start taking Required Minimum Distributions (RMD)?

*Important Highlights*

  1. Be aware of year-of-death required distributions.
  2. Do not ignore beneficiary forms. All IRA accounts should have designated beneficiaries.
  3. The Required Beginning Date (RBD) is important. The RBD is April 1st of the year following the year the participant reaches their applicable RMD age. An account owner passing away before or after their RBD changes the timing of distributions within the ten-year liquidation period.

One last issue: What happens when someone inherits an inherited IRA? A “successor beneficiary” is someone who inherits a retirement account from the beneficiary of the original retirement account owner, also known as an “inherited inherited IRA.” The RBD occurs again because, if the original beneficiary was subject to the ten-year rule, then the successor beneficiary must take distributions within the same ten-year window. Whether or not annual distributions are required within this window will be based on the same rules listed above dependent on the original account owner’s death related to their RBD. If the original beneficiary was an eligible designated beneficiary and elected to use the life expectancy method for distribution, the successor beneficiary obtains a new ten-year distribution window.

The information has been obtained from sources we believe to be reliable; however no guarantee is made or implied with respect to its accuracy, timeliness, or completeness. It is suggested that you consult your financial professional, attorney, or tax advisor with regard to your individual situation.

Acumen Wealth Advisors, LLC® is a Registered Investment Adviser. Advisory services are only offered to clients or prospective clients where Acumen Wealth Advisors, LLC® and its representatives are properly licensed or exempt from licensure. Past performance is no guarantee of future returns. Investing involves risk and possible loss of principal capital. No advice may be rendered by Acumen Wealth Advisors, LLC® unless a client service agreement is in place.