By Ian Berger, JD
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I have a new inherited IRA, and I believe that I am subject to BOTH the 10-year rule and to annual RMDs. Is this true?
- Original owner was age 92 and passed in September 2022.
- Original owner was taking RMDs and took the 2022 RMD in February 2022.
- My brother and I (age 61 and 63) each inherited half of this IRA; the paperwork on this inheritance was not complete until late January 2023. We are non-spouse beneficiaries (sons).
How do we calculate the RMDs we need to take, if any? (What balance do we use? Balance dated when? Whose age/life expectancy do we use?) When does the 10-year-rule clock start for us?
You are correct. Each of the inherited IRAs is subject to both the 10-year payment rule and annual RMDs. (I assume the inherited IRA has been split into separate accounts. If not, that should be done by 12/31/23.) Since death was in 2022, the 10-year period begins in 2023 and the inherited IRAs must be emptied by 12/31/32. Annual RMDs originally would have been required starting in 2023, but the IRS has waived 2023 RMDs for beneficiaries in your situation.
If RMDs are required for 2024 (depending on future IRS guidance), they would be based on the 12/31/23 account balances. If you turn (or turned) 63 this year, your 2024 RMD would use a 23.5 life expectancy factor under the IRS Single Life Table (24.5, the factor for a 63-year old that you would have used for the 2023 RMD, minus 1), the 2025 RMD would be based on a 22.5 factor (23.5 minus 1), and so forth. Your brother’s 2024 RMD (assuming he turns or turned 61 this year) would be based on a 25.2 life expectancy factor (26.2, the factor for a 61-year old that he would have used for the 2023 RMD, minus 1).
I have a client who is 76 years old, still works and does not have an ownership interest in her employer. She therefore has not been taking RMDs from her 401(k). She rolled over a portion of her 401(k) to her traditional IRA this year and continues to work for this company. She does not intend to retire until next year or later. She will continue to take RMDs on her IRA based on the prior year end balance.
Is there any RMD this year relative to the partial rollover from her 401(k)?
No. Her 2023 IRA RMD will be based on the 12/31/22 IRA balance, which does not include the amount rolled over earlier this year. And, she does not have a 2023 RMD due from the 401(k) since she is still working for her employer.