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The IRS can’t make up its mind about RMDs on inherited IRAs

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  • The IRS can’t make up its mind about RMDs on inherited IRAs

    I just read this article regarding RMDs on inherited IRAs post SECURE Act:
    https://www.forbes.com/sites/ashleae...h=b5377986ac39
    It would be nice if the IRS would determine their rulings before tax returns are due.

  • #2
    Hard to plan when the rules keep changing.

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    • #3
      I hadn’t seen that - fortunately, I can’t think of a client in this situation (yet) but I agree with Denise Appleby’s advice to wait until later in the year.
      Our passion is protecting clients and others from predatory and ignorant advisors. Fox & Co CPAs, Fox & Co Wealth Mgmt. 270-247-6087

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      • #4
        Forbes article says there are new rules for IRAs left to trust. Does anyone know what they are?
        Last edited by FIREshrink; 03-25-2022, 08:22 PM.

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        • #5
          Originally posted by FIREshrink View Post
          Forbes article says there are new rules for IRAs left to trust. Does anyone know what they are?
          They are in section 2 at this link. https://www.federalregister.gov/docu...-distributions

          As best I can determine, these rules clarify that the see through rules are retained for trusts as inheritors of IRAs. There had been some question since the issue was not addressed in the SECURE Act directly.

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          • #6
            So I have inherited an IRA in 2021. Based on the current ruling as child of the original owner I have 10 years to withdraw the money. I can take it all out now, or take it all out at the end of 10 years, or some annually. Is there a recommended way to withdraw the cash over the 10 years from an inherited IRA?

            I've got 500k in inherited IRA. My asset allocation is going to be the VTI so assuming around 6% return per year.

            I'm in the 24% tax bracket now. So lets say I can take 50k out a year and still remain in the 24% bracket. Does it make sense to just withdraw 50k each year so I'm only paying 24% tax when i pull funds out and then in the final year pull out the remainder and eat the 32% tax hike. (Lets assume tax rates remain relatively the same for the next 10 years, even though i know they change in 2026.

            Or does it make sense to wait until the very end. Compound gains in the IRA, then pull it all out in the last 2-3 years close to a large lump sum 200k a year or so. I'm paying close to the 32% at that point but I will have 8-10 years of tax free gains?

            Thoughts?


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            • #7
              Pay the lower taxes over the ten years up to the top of the 24% bracket. If you invest most/all of the distributions you will still get the gains.

              If you invest in tax efficient assets in taxable accounts, you will be far ahead. You will still get the gains, but taxable as capital gains at your discretion.

              Unless this an Inherited Roth IRA, you will not get 8-10 year tax-free. It will only be tax-deferred with all earnings also subject to much higher ordinary income taxes.

              If it is an Inherited Roth IRA, the RMDs never apply. Unless you need funds you should not take any distributions until the end of the tenth year.

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              • #8
                I would wait till later this year before deciding what to do. Read the article linked in the original post. That is exactly your situation assuming the original owner had already started taking RMDs. Whether you need to take RMDs this year is a big “l don’t know” so far.

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                • #9
                  They already indicated they were thinking about taking 1/10th of the balance for tax purposes. It is highly unlikely any RMD even if necessary will be > than that. Either way there is no reason to wait before taking a majority of what would be necessary to reach the 24% bracket. Then sometime by the middle of December take a distribution to top off.

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                  • #10
                    Getting closer to requiring RMDs in some situations:

                    https://www.wsj.com/articles/irs-reg...859171?mod=mhp

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                    • #11
                      This makes me wonder how RMDs are calculated if one inherits a checkbook IRA with a lot of illiquid assets whose valuations are anyone’s guess.

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                      • #12
                        Originally posted by Lithium View Post
                        This makes me wonder how RMDs are calculated if one inherits a checkbook IRA with a lot of illiquid assets whose valuations are anyone’s guess.
                        Best never to have the entire IRA in illiquid assets I suppose.
                        Helping those who wear the white coat get a fair shake on Wall Street since 2011

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                        • #13
                          Originally posted by The White Coat Investor View Post

                          Best never to have the entire IRA in illiquid assets I suppose.
                          I’m going to buy an apartment building in my self directed IRA. That way my heirs inherit…. a giant mess.

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                          • #14
                            Originally posted by The White Coat Investor View Post

                            Best never to have the entire IRA in illiquid assets I suppose.
                            Does it have to be an entire IRA though? Even if it’s just a smaller fraction, it still creates a problem.

                            FWIW I don’t have a sdIRA.

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                            • #15
                              Assuming you reinvest in tax-efficient ETFs, (VTI) now, 2022, is a great time to draw out assets to the top of your 24% bracket.

                              Is it allowable to do a Roth conversion on your inherited-IRA?

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