The SECURE Act allows those who inherited IRAs prior to 2020 to continue using the stretch IRA option, those who inherit an inherited IRA must use the 10-year rule.

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Mike Bernard, CFP® offers advisory services through KFG Wealth Management, LLC dba Korhorn Financial Group. This information is for general financial education and is not intended to provide specific investment advice or recommendations. All investing and investment strategies involve risk including the potential loss of principal. Asset allocation & diversification do not ensure a profit or prevent a loss in a declining market. Past performance is not a guarantee of future results….(read more)

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When inheriting an IRA, it is important to understand the 10-year rule and Required Minimum Distribution (RMD). The 10-year rule states that the beneficiary of an inherited IRA must withdraw the entire balance of the account within 10 years of the original owner’s death. The beneficiary is not required to take an annual distribution, but the entire balance must be distributed before the 10-year period ends.

The RMD is the amount that must be withdrawn from the inherited IRA each year. The RMD is calculated based on the beneficiary’s age, the account balance, and the IRS life expectancy tables. The RMD must be withdrawn each year, and if not taken, the IRS may impose a 50% penalty on the amount not withdrawn.

It is important to note that the 10-year rule and RMD apply to inherited IRAs only. Traditional IRAs and Roth IRAs held by the original owner are subject to different rules. For example, the original owner of a traditional IRA must begin taking RMDs by April 1st of the year following the year in which they turn 70 1/2. Roth IRAs do not require RMDs at any point.

Inheriting an IRA can be a complicated process, and it is important to understand the 10-year rule and RMDs. It is also important to consult a financial advisor or tax professional to ensure that you are taking the correct steps to comply with the rules.