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Here is the link to Christine Benz of Morningstar interviewing Ed Slott, who many consider THE expert in the country on the IRS’s interpretation of IRA laws/rules for 2025.
Ed is a gold mine of information as to how to decide on whether to convert traditional IRAs to Roths, and it’s effect on your beneficiaries.
Good link by David and excellent comment by Bill. Thanks for the informative posts.
Hi David,
I agree that Ed Slott, CPA offers key advice regarding the ever changing IRA rules in his many Morningstar interviews. The video that you linked is a good introduction to those changes. If you have inherited an IRA it is important for you to understand the impact of that new law on you, your taxes and your options. After watching the Slott interview my next step recommendation is to buy and read chapter 8 titled Handling Inherited Retirement Accounts in Mike Piper’s book After the Death of your Spouse. Of all of Mike Piper’s short books this is my favorite.
The first Secure Act changed the rules for most beneficiaries who inherited an IRA from a IRA account owner dying after 2019. The year 2025 is key because for such traditional IRAs that were inherited it took a couple of years for the IRS to write the new regulations of the law and because of the delay and on going confusion as to what the law meant the IRS annually has waived the failure to take the RMD penalties on the new required minimum distributions (RMD) that the first Secure Act imposed but waived for tax years through 2024. Not so for 2025 in that if you inherited a post 2019 death traditional IRA and you are non-eligible beneficiary then you must receive an appropriate required minimum distribution in 2025 or you will be hit with a substantial tax penalty (25% of the RMD amount, maybe a lesser penalty if you fix quickly and ask for and receive accommodation, see IRS form 5329 part IX) along with being taxed when the distribution does occur. Ouch.
The pre-2020 RMD rules were changed the least by the Secure Act for a surviving spouse beneficiary, a little more for a certain class of other eligible beneficiaries and the most for non-eligible beneficiaries who in addition to required RMDs must also receive a distribution of the entire balance of the inherited IRA by December 31 of the tenth year following the year of the descendant IRA owner’s death that named you as a beneficiary of their IRA.
The impositions of the RMD requirement for a non-eligible inherited IRA beneficiary also hinges upon the age of the previous IRA owner at their date of death. If the decedent had reached their RMD age at the date of death then you as beneficiary also have a RMD requirement on a inherited traditional IRA. If the decedent had not reached their RMD age at death then the beneficiary can typically wait until the 10 year period is up to fully drain the traditional IRA account.
There is no Roth IRA RMD requirement for the Roth IRA beneficiary just as there was no Roth RMD requirement for the original owner. The 10 year drain requirement does applies to inherited Roth’s for non-eligible beneficiaries. You cannot make any inherited IRA your own unless you are the surviving spouse who was named the sole primary beneficiary of the inherited IRA and elect to do so.
This is just an overview of the added IRA tax complexities that we face in general and if you are inheriting any kind of IRA and you are not shortly going to take a full distribution, as is often what happens, then I strongly urge you to seek individualized professional advice.
The 2019 Secure law change was a way for congress to accelerate tax collections by eliminating the previous rules which allowed decades for inherited IRAs to be paid out. I think for many people the first Secure Act is another positive factor in considering Roth conversions.
Plan accordingly. Check your beneficiary designations.
Best, Bill
And if you are planning on shortly taking a full distribution, seek tax advice, since this seems like the highest taxed option.
“Unless your share of the balance of the inherited IRA is nominal” would have been a better lead in my me regarding the choice to take a full distribution. I completely agree with you Randy that if you do not know the tax impact of taking your inherited IRA distribution then seeking qualified tax advice is a good decision if the amount is material. As I and others have pointed out in other posts the free AARP tax calculator can be a helpful decision tool.
Thanks Randy
Hey Bill,
Thanks for commenting. My thought in posting this was a much for us future deceased as for the beneficiaries. Knowing these rules could be important for estate planning.
PS I was not as informed about the RMD/inheritance rules in 2017 when both my parents died. A great deal of my understanding of the current law is from reading Ed Slott’s book The Retirement Savings Time Bomb Ticks Louder, which I highly recommend.
I have also read The Retirement Savings Time Bomb Ticks Louder. A worthwhile read, I second your recommendation.
Bill – Thanks for the additional explanation. My siblings and I are caught in this conundrum, where we now have to take RMDs from an inherited IRA received at the end of 2024. The confusing part is the lifetime table, which is calculated on the “would be” deceased’s age, based the ending balance of the previous tax year (in this case, 12/31/2024). And, yes. The account must be emptied by the end of the 10th year.
So it’s not based on the beneficiary’s age? I guess that’s one of the changes.
The key parts of the interview you are addressing are here:
1) if you inherit from somebody that was already taking RMDs that have passed their required beginning date, age 73, April 1 after you turn age 73 is the required beginning date now, so if you are past that date—say you died at age 80, you were already taking RMDs—the beneficiary you leave it to, your children or grandchildren, they will still have to empty it by the end of the 10th year after death. But in addition to that, they will have to still keep taking it out, taking RMDs for years one through nine of the 10-year rule based on their own life expectancy.
the last part,”taking RMDs for years one through nine of the 10-year rule based on their own life expectancy.”
I think is a little confusing in saying, “taking RMDs for years one through nine of the 10-year rule based on their own life expectancy.”
My understanding is if the deceased was already taking their RMDs, you just continue on the deceased’s tract of withdrawing RMDS.
Maybe Bill can clarify?
2) Now the other side of that rule is if you inherited from somebody who died before reaching their required beginning date, you don’t have RMDs for years one through nine of the 10-year rule. But I say take them anyway. You know, use up these low brackets, take pieces anyway.
OK, that’s what I thought Ed Slott was saying.
I just had an aha moment. I haven’t watched the video associated with the transcript. Maybe hearing exactly what he said may clarify what he meant.
With multiple beneficiaries receiving an inherited RMD distributions for 10 years your group may have an option, it depends on the IRA custodian, where all beneficiaries agree to automate the distributions which can mitigate or reduce the possibility of a missed future RMD distribution when future life events occur which can result in a compliance headache for all if one of the beneficiaries misses taking their annual RMD. For these situations I prefer an earlier in the year RMD distributions so you have time to react if the event where an expected RMD has not timely occurred when you expect it to.
For those beneficiaries with ongoing earned income, in the appropriate circumstances for each beneficiary, I have seen the beneficiaries use the taxable inherited RMD distribution to cash flow an increase in their own IRA or 401(k) contributions and reduce or wash the tax impact on your own taxes.
Best, Bill
Interesting! We will have to look closer at this idea. Thank.