IRA’s, whether obtained through years of savings or that come from an old retirement plan such as a 401K carry the same rules.
Namely, you are required to take distributions each year as follows:
- If you were born before 1950, Required Minimum Distributions (RMD’s) start at 70 ½.
- If you were born in 1950, RMD’s must start at 72.
- If you were born between 1951 and 1959, (RMD’s) must start by age 73.
- If you were born in 1960 or later, RMD’s must start by age 75.
Bear in mind, these rules do not apply to Roth IRAs as Roth IRA’s don’t require an RMD
BUT….If you inherit an IRA or Roth IRA the rules are different.
First, if you inherit an IRA (or Roth IRA) from a spouse there are special rules. Only a spouse is allowed to take an inherited IRA and roll it into their own IRA. Their RMD date can be the same as if it was their account initially.
For the rest of us, if we inherit an IRA or a Roth IRA the rules are different.
We must take RMD’s from both of these accounts. The only difference is, RMD’s from an IRA are taxable as ordinary income and Roth RMD’s are tax free.
Therefore, everything being equal, inheriting a Roth IRA is preferable to inheriting an IRA.
When you need to begin these RMD’s all depend on when the person passed away.
If you inherit an IRA (remember, an IRA or Roth IRA has the same RMD rules), and the person died before January 1, 2020, you are allowed to “stretch” the RMD’s out over your lifetime.
If one passed away after December 31, 2019, the “stretch” rule went away and now, as beneficiary, you are required to take RMD’s each year AND the account must be empty by the 10th year.
This 10 year rule has some exceptions as follows:
- Disabled beneficiaries
- Chronically ill beneficiaries
- Beneficiaries that are not more than 10 years younger than the deceased
- Certain minors until they reach the age of majority
Since there was so much confusion (And still is!) around these changes that came about due to the passing of the SECURE ACT, congress allows those that inherit an IRA (or Roth IRA) to forego any RMD’s until 2024 for those that passed away after December 31, 2019.
P.S. The rules that apply to IRA’s can also apply to other types of retirement plans.
If this article applies to you or you have any questions you would like clarification on, please don’t hesitate to reach out to me.
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In good health.
All the best.
Rick Fingerman, CFP®, CDFA®, CCPS®
Financial Planning Solutions, LLC (FPS) is a Registered Investment Advisor. Financial Planning Solutions, LLC (FPS) provides this blog for informational and educational purposes only. Nothing in this blog should be considered investment, tax, health, 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. Please see important disclosures link at the bottom of this page.