Inherited IRA question

[khow]

Florida

My father passed away in September of 2020. All of his accounts were TOD and split between me and my 2 siblings. One of the accounts was an IRA with approx. $200k. When he died, his IRA account was converted into 3 separate IRA-BDA accounts. Are we subject to the new 10 year rule or do we have to take RMD's?

I've talked to Fidelity twice and they have told me that we're subject to the 10 year rule. My brother said they told him that we have to take out a required minimum distribution of 10% every year or face a penalty. Everything I've read online makes me think that we're subject to the 10 year rule. I sent him the links with the info I found and he replied with this:

Here's what I found at the Vanguard link...

Non-spouse and when spouse is not sole primary beneficiary. An individual non-spouse beneficiary must begin taking RMDs on the basis of his or her own life expectancy by December 31 of the year after the owner's death.

At the Fidelity link...

If you are listed as a nonspouse beneficiary along with one or more other beneficiaries, it's important to separate your portion of the decedent's IRA in your name and then complete your first RMD by December 31 of the year following the original IRA owner's death.

So now after reading that part I'm not so sure. They mention the 10 year rule, but then go on to say what's in the quote above. Anyhow, are the rules different if there are multiple beneficiaries? Do I need to make an RMD every year or do I have 10 years to take distributions as I wish?

 

[adjusterjack]

The IRS is where you should be getting your information from.

Publication 590-B addresses distributions from inherited IRS. Go to the index first.

2020 Publication 590-B (irs.gov)

If there were any changes for 2021 they would be at:

About Publication 590-B, Distributions from Individual Retirement Arrangements (IRAs) | Internal Revenue Service (irs.gov)

 

[khow]

The IRS is where you should be getting your information from.

Publication 590-B addresses distributions from inherited IRS. Go to the index first.

2020 Publication 590-B (irs.gov)

If there were any changes for 2021 they would be at:

About Publication 590-B, Distributions from Individual Retirement Arrangements (IRAs) | Internal Revenue Service (irs.gov)

Yeah, I already read that. Seems contradictory, I can't figure it out.

 

[adjusterjack]

The following article seems to clear it up.

IRS Corrects Information on 10-Year Rule on Inherited IRAs (myfederalretirement.com)

The way I read it: As adult children of your father you and non-EDBs and have to liquidate your IRA in 10 years but do not have to take RMDs. You can take as much or as little as you want at any time as long as there is a zero balance at the end of ten years.

And here it is on the IRS web page.

Retirement Plans FAQs regarding Required Minimum Distributions | Internal Revenue Service (irs.gov)

Granted, I am not a tax pro. Check this thread over the next few days and see if one of our tax pro participants weighs in on it.

 

[quincy]

@davew9128

@LdiJ

@Taxing Matters

 

[LdiJ]

The following article seems to clear it up.

IRS Corrects Information on 10-Year Rule on Inherited IRAs (myfederalretirement.com)

The way I read it: As adult children of your father you and non-EDBs and have to liquidate your IRA in 10 years but do not have to take RMDs. You can take as much or as little as you want at any time as long as there is a zero balance at the end of ten years.

And here it is on the IRS web page.

Retirement Plans FAQs regarding Required Minimum Distributions | Internal Revenue Service (irs.gov)

Granted, I am not a tax pro. Check this thread over the next few days and see if one of our tax pro participants weighs in on it.

The rules are not quite as cut and dried as might be believed. If the person you inherited the IRA from was required to make RMDs then you are also required to make an RMD in the year that the person passed away and may be required to take further RMDs. If you are of an age where you would be required to take RMDs then you must take RMDs.

If both of you were under the age where RMDs apply then only the 10 year rule applies and you may take distributions as you see fit as long as the account it empty by the end of the 10 year period.

 

[khow]

The rules are not quite as cut and dried as might be believed. If the person you inherited the IRA from was required to make RMDs then you are also required to make an RMD in the year that the person passed away and may be required to take further RMDs. If you are of an age where you would be required to take RMDs then you must take RMDs.

If both of you were under the age where RMDs apply then only the 10 year rule applies and you may take distributions as you see fit as long as the account it empty by the end of the 10 year period.

My father was 88 when he passed away in Sept. 2020 and I'm 49. This is confusing to me.

 

[LdiJ]

My father was 88 when he passed away in Sept. 2020 and I'm 49. This is confusing to me.

If your father had not take his RMD prior to passing away, for 2020, then his estate or the heirs would have been required to take an RMD for at least 2020. A consult with a tax attorney is probably in order.

 

[davew9128]

I tend to agree with LdiJ, but with regards to the RMD should have been taken, although there is technically a 50% penalty, I have never seen it imposed in situations like this where corrective measures were taken.

 

[khow]

I tend to agree with LdiJ, but with regards to the RMD should have been taken, although there is technically a 50% penalty, I have never seen it imposed in situations like this where corrective measures were taken.

I looked at his tax return for 2020 and it didn't show he took any IRA distributions. However, I was under the assumption that The CARES Act waived RMDs for 2020.

 

[LdiJ]

I looked at his tax return for 2020 and it didn't show he took any IRA distributions. However, I was under the assumption that The CARES Act waived RMDs for 2020.

You can certainly make that argument for 2020. At this point we are talking about 2021 and it is 12/11/2021.

 

[khow]

You can certainly make that argument for 2020. At this point we are talking about 2021 and it is 12/11/2021.

So since my father was 88, he was required to take RMDs. He didn't take it in 2020, but they were waived for that year. I'm 49 and my brothers are 55 and 60. So I guess my question is what determines if me and my brothers are required to take RMDs or the 10 year rule applies?

 

[LdiJ]

Personally, I would go ahead and take 10% for 2021. None of you are subject to early withdrawal penalties and at a minimum you are all going to have to take it within the next 10 years, so since you may have all messed up for 2020, and you left it for the entirely last minute to check on 2021, it might be inherently wiser just to take 10% and pay regular tax on it.

 

[khow]

That's probably what I'm going to do. Thank you for your help.