Einstein Retirement Daily, its content, and its presenter are not giving specific tax, legal or investment advice. If you hear something in our show that causes you to want to take specific action, please consult with the appropriate professional who knows your specific circumstance before taking any action.

Kyle J. McCauley is the Managing Partner of City Center Financial.

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Inheritance is a complex subject, especially when it comes to taxes. Many people are curious about what taxes they may owe after inheriting an IRA or retirement account. In episode 40 of the Einstein Retirement Daily, we discuss the new RMD rules on inherited IRA and give some valuable information on inheritance and taxation.

Firstly, let’s talk about what an inherited IRA is. It is an individual retirement account that is left to a beneficiary after the account holder has passed away. When you inherit an IRA, you become the account owner and are responsible for managing it according to certain rules and regulations. These rules specify the minimum distributions that you need to take from the account each year and how much taxes you owe on those distributions.

The tax laws regarding inherited IRAs can be confusing, so it’s essential to understand the basics to avoid any tax penalties. Generally, the taxes you owe depend on the type of IRA, the age of the original account owner at the time of death, and your relationship to the original account holder.

If you inherit a traditional IRA or 401(k) plan, you will likely have to pay taxes on any pre-tax contributions and earnings in the account. The taxes will be based on your tax bracket for the year the distributions are made. However, you won’t owe taxes on any after-tax contributions or Roth contributions made to the account.

If you inherit a Roth IRA or Roth 401(k) plan, the rules are slightly different. With a Roth account, you generally will not owe any taxes on distributions made from the account as long as the account has been open for at least five years.

In December 2019, new RMD rules for inherited IRAs took effect under the SECURE Act. These changes impact IRS life expectancy tables, which determine the minimum distributions that you need to take from the inherited IRA each year. Under the new rules, most non-spouse beneficiaries must withdraw the entire IRA balance within ten years of the original account owner’s death. However, spouses and certain other beneficiaries are exempt from these rules.

In conclusion, if you have inherited an IRA or another retirement account, it’s important to understand the tax implications that come with it. Be sure to consult a tax professional if you need help with inheritance tax planning or understanding how the new RMD rules may apply to you. We hope this article has been helpful in shedding some light on this complicated topic.