Watch to learn about the changes the IRS made for beneficiaries of inherited IRAs.
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The Internal Revenue Service (IRS) recently announced a significant change to the rules governing Required Minimum Distributions (RMDs) for Inherited Individual Retirement Accounts (IRAs). This change, which took effect on January 1, 2020, has important implications for IRA beneficiaries and their inheritance planning.

Prior to this change, beneficiaries of Inherited IRAs were able to stretch out their distributions over their lifetime, allowing for continued tax-deferred growth of the IRA assets. However, under the new rules, most beneficiaries are now required to withdraw the entire balance of an Inherited IRA within 10 years of the original account owner’s death. This change was enacted as part of the SECURE Act, which was signed into law in December 2019.

This new rule applies to beneficiaries who are not considered “eligible designated beneficiaries.” Eligible designated beneficiaries include surviving spouses, minor children, disabled individuals, individuals who are chronically ill, and beneficiaries who are not more than 10 years younger than the original account owner. These beneficiaries are still able to utilize the lifetime stretch option for Inherited IRAs.

The change in the RMD rules for Inherited IRAs has a significant impact on the tax implications for beneficiaries. With the 10-year distribution requirement, beneficiaries may face higher tax bills as they withdraw larger amounts of money from the account in a shorter period of time. Additionally, beneficiaries who inherit IRAs will need to carefully plan their distributions in order to minimize the tax consequences and potentially avoid higher tax brackets.

Beneficiaries who are subject to the new 10-year distribution rule should work with a financial advisor or tax professional to develop a plan for managing and distributing their Inherited IRA assets. Strategic planning may involve spreading out withdrawals over the 10-year period, considering the tax implications of different distribution strategies, and potentially exploring other options for tax-efficient wealth transfer.

It is important for beneficiaries of Inherited IRAs to understand the new RMD rules and how they may impact their inheritance planning. By being proactive and seeking guidance from financial professionals, beneficiaries can navigate the changes effectively and make informed decisions about how to best manage their Inherited IRA assets in a tax-efficient manner. #inheritancetax #inheritance #beneficiaries #beneficiary