Inherited IRA 10 Year Rule - YouTube

Hi everyone! I'm Ara Oghoorian with ACap Advisors  and Accountants, and welcome to another edition of  

the ACap ReCap, where we go beyond the blog and  answer some of your most important questions.  

Today we're going to talk about the new rule  related to inherited IRAs. And I say new rule,  

because it went into effect after December  2019, and it affects inherited IRAs,  

and there's a 10-year rule. So, stay tuned, and  we'll dive right into it! But, before we begin,  

remember to subscribe, like and share  our channel, and if there's a topic,  

that you want us to cover, be sure to  include it in the comments section below  

or send us a message, and we'll be  sure to include it in a future episode.

So, let's first define what is an inherited IRA:  an inherited IRA is when someone, a beneficiary  

inherits the IRA of someone who's passed away. So,  for example, if a father passes away and has an  

IRA, and then the beneficiary of that IRA is  their child or their nephew or their niece,  

that child, the nephew or the niece would  then be the owner of that inherited IRA. Now,  

why is inherited IRA important is because the  inherited IRA now has is subject to what's called  

required minimum distributions: whoever inherits  that IRA, has to start taking money out of that  

IRA, and prior to 2019 the rules were very  different on how that money was taken out  

versus post after 2019, when those rules were  taken out. Why is the distribution on an inherited  

IRA so important is because the amount of income  the person has to report, that has an inherited  

IRA. Prior to 2019 the beneficiary of an IRA could  stretch the distributions over their lifetime,  

meaning, if they took the distributions over their  lifetime, every year they have to take a very  

small amount over their lifespan and then report  that as income and pay tax on it. But after 2019,  

because of the Secure Act, now, anyone who  inherits an IRA, well, not anyone, because we're  

going to go some through some of the exceptions,  but for most people, who inherit an IRA, they have  

to distribute that money over a 10-year period,  and that's significant, because now they have to  

report all that income in a 10-year period and  pay tax on it, which is significantly different  

than before, where people were able to stretch it  out over their lifetime. So, what are some of the  

exceptions to the new inherited IRA rule. Well,  first off, it only applies to people who passed  

after December 31st, 2019. So, if a person inherit  an IRA, inherited an IRA before that, they are  

still subject to the old rules, meaning they can  spread it out over their lifetime. But, if someone  

inherits an IRA January 1st, 2020, they're going  to be subject to the new rules, which is the new  

10-year distribution rule. Another exception is  someone, who's a spouse of this deceased, so if a  

husband passes and leaves the IRA to the wife, or  the wife passes leaves it to the to the husband,  

then it's not subject to that new 10-year  rule. Another exception is someone,  

who inherits an IRA, who is chronically ill or  disabled, the exception would apply to them,  

as well. Also it applies to someone, who the  beneficiary is no less than 10 years younger, than  

the owner. So, as you can see there are  some exceptions to the new 10-year IRA rule,  

but for the most part people, who inherit an  IRA, a non-spouse beneficiary, they are going  

to be subject to the new 10-year distribution  rule, which means that they have to liquidate  

that account within 10 years and pay tax on that  money. One common question that we get often  

is about the 10-year rule itself: does the money  have to be spread over 10 years, can they take it  

all at once, or can they wait till the 10th  year? And the rule is that it just has to be  

liquidated over that 10-year period. So, if you  inherit an IRA and it's after January 1st, 2020,  

you can either take all the money out all at once,  you can spread it out over a 10-year period or you  

can just let it continue to grow and then take it  out on that 10th year. Now, keep in mind, if it's  

a sizable in IRA, that you've inherited, you're  going to report a lot of money on that year,  

that you decide to take that distribution, and if  you're very careful with your tax planning, if you  

know, that you're going to have one particular  year, where your income is going to be very low,  

you may want to take out a larger portion or the  most of that IRA in that one particular year.