✪ Inherited an IRA? The new rules apply (Finally)

The passing of the SECURE act provided many changes to how retirement plan distributions are handled.

For those that inherited a retirement plan after 12/31/2019 the new rules apply.

The only problem was these new rules were put on hold. Until 2025 that is.

We now (finally) have the final rules on these required distributions and if you inherited a retirement plan after 12/31/2019, you have until December 31st of this year to comply with the new rules.

As a reminder, under the old rules. If a non-spouse inherited an IRA prior to 12/31/2019, they were allowed to follow the “stretch” rules.

Here’s an example of the old stretch rule. Marie’s dad passed away in 2018 and leaves his IRA to her. She can either take all or some of the balance BUT, she must withdraw at least the Required Minimum Distribution (RMD) amount each year. (This is a calculation that changes each year, and we provide that for clients). If she takes this RMD, she can do that for as long as she lives (or until the account is empty).

Under these new rules, here are a few examples of how it works:

Lizzie inherits an IRA from her dad in 2024. Her dad was 78 years old. Since her dad was over his Required Minimum Distribution (RMD) age, Lizzie is required to take her first RMD in 2025 and do so under the 10-year rule and then empty the account by the 10th year from the date of death (if money is left)
Billy inherits an IRA from his aunt who died in 2022 at the age of 66. Since his aunt wasn’t at their RMD age, Billy is not required to take an RMD each year however, the account must be emptied by the 10th year after she died.
Mary inherits a Roth IRA from her mom in 2024. Since Roth IRA’s do not have a required minimum distribution (RMD), Mary does not have to withdraw anything until the 10th year after her mom died. Mary can let this account grow over this time period and when money is withdrawn (whether during the 10-year period or all at once in year 10) the money is all tax free to Mary.
Joanne’s husband died in 2024 and left his IRA to Joanne. Under the Spouse Rule, Joanne is not required to withdraw money from her husband’s IRA until she reaches her required minimum distribution (RMD) date. Since she was born in 1961, her first RMD must begin in the year she turns 75.

These rules can be complex and there can be circumstances where the 10 - year rule doesn’t apply for non-spouses. These are called “Eligible Designated Beneficiaries.” To learn more, feel free to reach out to me to discuss.

Here is another blog you might find of interest. “The Tale of Three IRA’s” HERE

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All the best.

Rick Fingerman, CFP®, CDFA™, CCPS®

617-630-4978

Rick@PlanWithFPS.com

Financial Planning Solutions, LLC (FPS) provides this blog for informational and educational purposes only. Nothing in this blog should be considered investment, tax, medical, or legal advice. FPS only renders personalized advice to each client. Information herein includes opinions and source information that is believed to be reliable. However, such information may not be independently verified by FPS