Inheriting IRAs

[disneysteve]

When my cousin dies, I will inherit his traditional and Roth IRAs. I know the rules changed a couple of years ago and they eliminated the provision that let you stretch withdrawals over your life expectancy, instead making you take the money out over 10 years.

From what I'm reading, there is an exception if the deceased was less than 10 years older than you, which is the case here, so I might still qualify to do it based on the old rule rather than the new 10-year rule. Does anybody know if that's correct? If it falls under the old rules, do I have to start taking withdrawals right away or not until I retire?

I'm also gathering that I have to rollover the money into an inherited IRA. Will that mean one for the traditional and another for the Roth? Will the Roth remain tax-free going forward?

I know my CPA can answer all of these questions but I try not to bug him too much during tax season with questions that aren't directly related to this year's return.

[moneybags]

I'm also gathering that I have to rollover the money into an inherited IRA. Will that mean one for the traditional and another for the Roth? Will the Roth remain tax-free going forward?

Yes, 2 accounts. Basically, the traditional IRA has never been taxed, so withdrawals will be taxed. The Roth has already been taxed, so withdrawals will be tax free. The IRS can't tax the same money twice. The IRS also wants their tax money from all the traditional IRAs sitting out there, thus the RMD rules.

I read Fidelity's site about the 10 year rule. It looks like you are correct about the provision, but I am not 100% sure.

[Like2Plan]

Disneysteve,
I am so sorry your cousin is not doing well.

Yes, if you are not more than 10 years younger than your cousin you qualify for one of the exceptions and you may do a "stretch" IRA to take RMDs over your lifetime instead of just 10 years. I tried to pull up the IRS publication 590-B, but it is currently being rewritten and the older version doesn't address many of your questions.

This reference is from Fidelity:
If the original IRA owner died on or after January 1, 2020

• The SECURE Act requires beneficiaries to withdraw all assets from an inherited IRA or 401(k) plan by December 31 of the 10th year following the IRA owner's death. Exceptions to the 10-year rule include payments made to an eligible designated beneficiary (a surviving spouse, a minor child of the account owner, a disabled or chronically ill beneficiary, and a beneficiary who is not more than 10 years younger than the original IRA owner or 401(k) participant). These beneficiaries can "stretch" payments over their life expectancy. Discuss the potential tax implications and distribution options of this accelerated withdrawal schedule with your tax advisor.

https://www.fidelity.com/learning-ce...non-spouse-IRA

https://www.fidelity.com/building-savings/learn-about-iras/inherited-ira-rmd

Yes--you will have to rollover the money into an inherited IRA. Yes, it will be one for the traditional and one for the Roth. Yes, the Roth will remain tax free (I am also assuming that your cousin's Roth is "qualified" meaning it has been open for at least 5 tax years)

Here is a link on Kiplinger: Make sure the title is correct.

https://www.kiplinger.com/article/retirement/t032-c032-s014-understanding-inherited-iras-and-their-dangers.html

On the RMDs- you really want to get that right--I believe it is a 50% penalty for getting it wrong, but your CPA should be able to give you good guidance on that.

[corn18]

Shout out to Like2Plan. You always come through on anything 401k, IRA and who knows what. BZ!