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FEBRUARY 1, 2021

Am I required to take withdrawals from my inherited IRA assets?

Answered by
Debra Greenberg
Director, Personal Retirement Strategy and Solutions, Bank of America
Below you will find the general rules regarding inherited IRAs. Required Minimum Distributions (RMDs) are waived in 2020 due to new legislation.
Because the rules about inherited IRAs can be complex, guidance from a tax professional is of critical importance. But, for the most part:
  • If the inherited IRA assets are from your spouse and you roll over the money to your own IRA, you must begin annual withdrawals called Required Minimum Distributions (RMDs) based on your own life expectancy once you pass your required beginning date (RBD).Footnote 1
  • If — as a spouse or a non-spouse — you establish an inherited IRA account, the rules have changed as of January 1, 2020. Distributions to individuals other than the surviving spouse of the employee (or IRA owner), disabled or chronically ill individuals, individuals who are not more than 10 years younger than the employee (or IRA owner), or children of the employee (or IRA owner) who have not reached the age of majority are generally required to be distributed by the end of the 10th calendar year following the year of the employee or IRA owner's death. (Most entity beneficiaries would not be impacted by this 10-year rule and would still follow the five-year rule that was in effect prior to new legislation.) This applies to distributions where the decedent passed away after December 31, 2019. If the decedent passed away on or prior to December 31, 2019, you may be able to stretch the account over your life expectancy, but your beneficiary who inherits the account if you die would be subject to the 10-year rule. Check with a tax advisor regarding your specific situation.
"It depends on what you do with the inherited assets. But, in most cases you will need to take required minimum distributions — known as RMDs."
— Debra Greenberg, Director, Personal Retirement Strategy and Solutions, Bank of America
If your distribution strategy involves taking RMDs and you fail to withdraw the full RMD in any given year in which you are required to, it can result in additional taxes of 50% of the RMD that was not withdrawn. If you are subject to the 10-year rule, then no distributions are required annually, but the entire account balance must be distributed by the last day of the calendar year containing the tenth anniversary of the date of death. Check with your tax advisor to ensure you are taking the minimum required amount within the correct time period.
To learn more about your options for distributing inherited IRA assets, read "Can I roll over an inherited IRA into my own IRA?"
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Footnote 1 The required beginning date (RBD) is in the year that the account owner turns 72. This changed in 2020 due to new legislation so if the person was age 70½ prior to 1/1/2020, they would be required to take an RMD for 2020 and 2021. In any case, they can delay the first RMD, but then they'd be required to take two RMDs the following year.

Merrill, its affiliates, and financial advisors do not provide legal, tax, or accounting advice. You should consult your legal and/or tax advisors before making any financial decisions.
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