The IRS is making more changes to inherited IRAs which will eventually impact many federal employees. The Secure Act took effect in 2020 making changes to inherited IRAs by forcing beneficiaries to distribute all funds in a 10 year time period. This year the IRS decided to make more changes and require some beneficiaries to take RMDs….(read more)

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Inherited IRAs, also known as beneficiary IRAs, are accounts that are passed down to a beneficiary after the death of the original account holder. These accounts are a great way for individuals to pass down their retirement savings to their loved ones, but recent changes to inherited IRAs have made it more complicated for beneficiaries to manage them.

The biggest change to inherited IRAs is the new rule that requires non-spouse beneficiaries to take required minimum distributions (RMDs) within 10 years of the account holder’s death. This means that beneficiaries must take out the entire balance of the account within 10 years, or face a hefty tax penalty. This is a significant change from the previous rule, which allowed beneficiaries to take out only the RMDs each year and leave the rest of the account intact.

Another change to inherited IRAs is the new rule that requires beneficiaries to use the “stretch” IRA option. This option allows beneficiaries to stretch out their RMDs over their lifetime, rather than taking out the entire balance within 10 years. This can be beneficial for beneficiaries who want to keep their retirement savings invested for a longer period of time.

Finally, the new rules also require beneficiaries to take out their RMDs by December 31st of each year. This is a change from the previous rule, which allowed beneficiaries to take out their RMDs at any time during the year. This change is intended to help beneficiaries better manage their accounts and ensure that they are taking out their RMDs on time.

Overall, these changes to inherited IRAs can be confusing and complicated for beneficiaries to manage. It’s important for beneficiaries to understand the new rules and consult with a financial advisor if they need help understanding and managing their inherited IRA.