The RMD is exactly as it sounds. For traditional Individual Retirement Accounts (IRAs), owners have the responsibility to make annual distributions from their retirement account, beginning at a certain age.
As of Jan. 1, 2023, your RMD age is dependent upon the year in which you were born. If you reached age 72 on or before Dec. 31, 2022, you were supposed to have been taking distributions and should begin taking them if not. If you were not age 72 by Dec. 31, 2022, you must take your first distribution by April 15 of the year following attainment of age 73.
In addition to the RMD age, distributions were also updated with the establishment of the ten-year rule. If a beneficiary is subject to the ten-year rule, they must empty the account by the tenth year following the year of the original owner’s (or eligible beneficiary’s) death. This rule initially caused confusion and required the IRS to issue Notice 2022-53, stating that the beneficiary of an IRA, who was subject to the ten-year rule but did not take an RMD in 2021 or 2022, will not be penalized. RMDs were waived in 2020 due to COVID-19. For those applicable individuals, RMDs must be taken in 2023.
When the owner of an IRA passes away, there is typically a beneficiary assigned to the account, to whom the account now belongs to. Unless you are the spouse of the deceased, in which case you can rollover your spouse’s IRA into your own, the beneficiary will have an inherited IRA established in their name, e.g., John Smith inherited IRA beneficiary of Mary Smith.
The nature of your relationship with the deceased matters in terms of your distribution options and breaks down into two categories:
1. Eligible designated beneficiary
2. Designated beneficiary
There are three distribution options:
1. Eligible designated beneficiary (spousal only) rules
2. Eligible designated beneficiary (nonspouse) rules
3. Designated beneficiary should follow the ten-year rule
We have covered the rules for current inherited IRA procedures, but the SECURE Act of 2019 changed the rules for beneficiaries if the death of the original owner occurred after 2019 Dec. 31, 2019). So, for deaths pre-2020, there are different rules to follow. The manner of beneficiary status and their respective distribution options are broken down below.
1. Spouse beneficiary
2. Nonspouse beneficiary
Citations:
Retirement Topics – Beneficiary, IRS, Aug. 2023
RMD Rules for Inherited IRAs, Vanguard
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