Non-Spousal Inherited IRAs

Written by: Garrett Bohler, Wealth Manager

Here at Wheelhouse, we have had an influx of families with non-spousal inherited IRAs. A non-spousal inherited IRA is an IRA that was inherited from someone else other than your spouse. When you have a new account type there are often corresponding questions about the rules, restrictions and options. Below are a few key points to help understand the rules and processes around Inherited IRAs should this be of value to you now or possibly down the road.

Before the Secure Act of 2019, Inherited IRAs were taken as lifetime distributions with an RMD based on your age, more commonly referred to as a Stretch IRA. After the Secure Act of 2019 Inherited IRAs must be emptied by the end of the tenth year following the decedents date of death. There are a few rules when it comes to an Inherited IRA that was inherited after 2019, below are the three ways that funds can be dispersed and the rules around those dispersal methods:

1. If the decedent was taking RMDs or was of RMD age at the time of death, then the normal 10-year rule has a caveat that you must continue taking RMDs through years 1-9, and in year 10 the account must be fully liquidated. You can, however, take a larger withdrawal than the RMD at any time during the 10-year period.
   
   • Now if you are wondering as to if this rule applies to you but you have not had to take any RMDs on your Inherited IRA in the past, that is because the IRS was very lenient with this rule but they have indicated that beginning this year they will start cracking down on this rule regarding beneficiaries taking the RMDs from their inherited IRAs.
     
2. If you are an individual who is not more than 10 years younger than the IRA owner, Disabled, Chronically Ill, or the IRA owner’s minor child (once the child reaches age of majority the Inherited IRA will revert to the 10-year rule.) you may qualify as an eligible designated beneficiary as defined by the IRS. In turn, you would qualify to take the inherited IRA as a Lifetime distribution IRA with an RMD each year calculated off your age.
   
3. If you do not fall into the two categories above, then the normal 10-year rule applies, which states that with an inherited IRA you can take withdrawals at any time during the 10-year period, the account just needs to be fully distributed by the end of the tenth year following the decedents death

If you have any questions about your inherited IRA or find yourself inheriting an IRA, please don’t hesitate to reach out to our team today.