inherited IRA

Forum|Forum|1 year ago
June 26, 2024
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My dad had a traditional IRA with an investment firm. After he passed, the firm created an IRA in my name as a vehicle to process this account. I am being told that their is an IRS stipulation that says I have 10 years to liquidate (the 10 year rule). I am looking for clarification on this. Also, I was hoping to roll this into my own personal IRA but was told I cannot, because of the 10 year rule. Is there any way around this? I don't understand these limitations imposed on inherited monies.

Ask the Experts - Retirement II - June 2024

Andrew_W

Based on the information you provided, it sounds like you are considered a Designated Beneficiary by the IRS. Generally, designated beneficiaries must follow the 10-year rule:

From the IRS:

10-year rule: If a beneficiary is subject to the 10-year rule,

Empty the entire account by the end of the 10th year following the year of the account owner's (or eligible designated beneficiary's) death
Relief under Notice 2022-53 for beneficiaries subject to the 10-year rule
- The IRS will not treat a beneficiary of an inherited account in a plan or IRA who was subject to the 10-year rule and who failed to take an RMD for 2021 and 2022 as having failed to take the correct RMD

The IRS has a breakdown of the treatment of inherited IRAs here: Retirement topics - Beneficiary

The reason for these limitations is that traditional IRAs/retirement accounts are funded with pre-tax funds, or said in another way, funds that have never been taxed. Unfortunately, there is no way around this requirement.

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LRUAuthor

How is "designated beneficiary" defined? Myself and two siblings were the three listed beneficiaries.

Andrew_W

Designated beneficiaries are those who are not "eligible designated beneficiaries".

Eligible Designated Beneficiaries are:

Spouse or minor child of the deceased account holder
Disabled or chronically ill individual
Individual who is not more than 10 years younger than the IRA owner or plan participant

This is per IRS regulations: Retirement topics - Beneficiary

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