How Is Beneficiary IRA Taxed? #shorts #retirement #taxes
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How Do Inherited IRA’s work? || When Must Inherited Ira Distributions Start?

In this video, I want to talk about how inherited IRA’s work for non-spouse beneficiaries. If you are someone who has an inherited IRA from someone who is not your spouse, you have 10 years to distribute the entire IRA account and pay the taxes. This new rule went into place after the SECURE ACT was signed late in 2019. Now, if you had an inherited IRA BEFORE Jan 1 2020, the old rules for distributing your inherited IRA are still in effect. Let me give you the old Inherited IRA rules first, and then we will discuss the new inherited IRA rules and when must inherited ira distribution rules start.

Old Inherited IRA Distribution Rules (Pre Jan 1, 2020):
1. 5 Year Rule-You can take 5 equal distributions from your inherited IRA over 5 years
2. Stretch Option-You can stretch the inherited IRA over your lifetime and take a calculated Required Minimum Distribution (or RMD) from the inherited IRA every year over your life (If you pass away and your inherited IRA is inherited by your beneficiary, they then must distribute the entire balance in that year).

New Inherited IRA Rules (Post Jan 1, 2020)
1. 10 Year Distribution Option-You must distribute the inherited IRA over a 10 year span. Does not matter how you distribute the inherited IRA, it just needs to be distributed over 10 years and the taxes paid.

There are 3 exceptions to the 10 year inherited IRA rule:
1. A Special Needs Trust Inherits the IRA (No 10 year rule)
2. You are disabled or Terminally Ill (No 10 year rule)
3. Minor (You are a minor child of the deceased)

Now that we understand HOW the inherited must be distributed, let’s talk about the taxes on the distributions from the inherited IRA. If you are on Social Security or Medicare, you want to make sure that you are monitoring your inherited IRA distributions so not to effect your Medicare taxes (IRMAA Tax). If your retirement income exceeds certain levels, your Medicare part B premium can be increased over a 12 month period only coming down once you file your next years tax return and show lower income. That is why it is so important to do tactical tax planning if you inherit an IRA from a non-spouse when you are on social security or Medicare.

Another situation to be aware of is if you inherit an IRA when you are working. Any distributions you take out of the inherited IRA could push your traditional income into another tax bracket (meaning you pay more taxes) and could push you above the allowable limit for contributing to retirement plans. Again, that is why it is so important to do tactical tax planning if you have an inherited IRA.

If you have an inherited IRA and want to make sure that you are being the most efficient with your taxes, investments, and overall distributions with your inherited IRA, contact me at and let’s discuss ways to navigate your inherited IRA and the taxes involved.
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Individual Retirement Accounts (IRAs) are a great way to save for retirement, and with a Beneficiary IRA, you can continue to save even after the account holder has passed away. But like all things related to finance, taxes must be paid.

So, how is a Beneficiary IRA taxed?

Firstly, it’s important to note that a Beneficiary IRA is not taxed the same as a traditional IRA. If you inherit a traditional IRA, you will typically be required to pay income tax on the distributions you receive. However, with a Beneficiary IRA, the taxes are deferred until you withdraw the funds.

The taxes for a Beneficiary IRA are calculated based on the distribution options you choose. For example, you can choose to take out the entire amount at once, or you can stretch the distributions over your lifetime. If you choose to take out the entire amount, you will be taxed on the full amount as ordinary income in the year you receive it.

If you choose to stretch the distributions, then the taxes will be calculated based on the annual distribution you take out. This means that you will pay taxes on the amount you take out each year, rather than on the full amount at once. The amount of RMDs (required minimum distributions) you take out is based on your life expectancy, which is determined by the IRS.

It’s important to note that if you inherit a Beneficiary IRA from a spouse, you have the option to treat it as your own IRA. This means that you would then follow the same distribution rules as if you were the original account holder.

In conclusion, a Beneficiary IRA is not taxed the same as a traditional IRA. The taxes are deferred until you withdraw the funds, and the amount of taxes you pay depends on the distribution options you choose. You can choose to take out the full amount at once or stretch it out over your lifetime. If you inherit a Beneficiary IRA from a spouse, you have the option to treat it as your own IRA.

As always, it’s important to consult with a financial advisor or tax professional to determine what options are best for you and your individual situation.