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Published: March 10, 2025
Inherited retirement accounts and RMDs is a critical topic for anyone who inherits retirement funds. These accounts follow distinct RMD rules that differ from those for traditional retirement accounts. Understanding these rules is crucial for effective tax planning and avoiding costly penalties.
Understanding RMD Rules for Inherited Accounts
The SECURE Act introduced significant changes to inherited retirement accounts, affecting how beneficiaries must withdraw funds. Here’s how the timing of the original account owner’s death impacts RMD rules:
- For deaths before 2020—The old stretch IRA rules apply, allowing non-spouse beneficiaries to take RMDs over their own life expectancy.
- For deaths in 2020 or later—Most non-spouse beneficiaries must now withdraw the entire balance within 10 years.
- For non-designated beneficiaries (e.g., estates and charities)—If the original owner had not yet started RMDs, the 5-year rule applies. If they had begun taking RMDs, distributions continue based on their remaining life expectancy.
Spousal Inheritance Options
As a surviving spouse, you have more flexibility than other beneficiaries. Your options include:
- Rolling the account into your own IRA—This allows you to treat the account as if it was always yours, delaying RMDs until you reach RMD age.
- Keeping the account as an inherited IRA—You follow the deceased spouse’s RMD schedule, which can be beneficial if you need early access to funds.
- Electing to be treated as the deceased for RMD purposes—New in 2024, this option allows a spouse to use the Uniform Lifetime Table and delay RMDs until the original owner would have been required to take them.
RMD Rules for Non-Spouse Beneficiaries
For non-spouse beneficiaries, the SECURE Act 2.0 established two categories:
- Eligible Designated Beneficiaries (EDBs)—Includes minor children (until age 21), disabled individuals, and those less than 10 years younger than the deceased. They can take RMDs over their own life expectancy.
- Non-Eligible Beneficiaries (NEBs)—Most adult children and other heirs must follow the 10-year rule, requiring full account liquidation within a decade. If the original owner had already started RMDs, annual withdrawals may be required in addition to the final balance by year 10.
Managing Tax Implications
Inherited RMDs are taxed as ordinary income, potentially increasing your tax bracket. Strategies to minimize tax burdens include:
- Spreading withdrawals over multiple years to avoid large tax spikes.
- Using qualified charitable distributions (QCDs) to reduce taxable income.
- Converting inherited accounts into a Roth IRA (if eligible) to benefit from tax-free growth.
For more information on tax implications, see The Tax Impact of Required Minimum Distributions (RMDs).
Next: Changes in Required Minimum Distribution (RMD) Rules You Need to Know
RMD rules have evolved significantly over the years, with major changes introduced by the SECURE Act and SECURE Act 2.0. These updates have impacted everything from when RMDs begin to how inherited accounts are handled. In the next section, we’ll explore the key changes in RMD rules and what they mean for your retirement planning.
Read Next: Changes in Required Minimum Distribution (RMD) Rules You Need to Know ➡