Don’t touch them.
Don’t touch an inherited IRA until you have consulted a knowledgeable adviser about the taxability of any distribution, transfer or name change on the IRA.
Upon the death of an IRA owner, there are several rules that affect the distributions from the IRA.
The required minimum distribution (RMD) rules change upon the owner’s death. Rules for beneficiaries take effect in the year following the year in which the owner dies, so you have to be very careful.
There are three RMD rules that may apply:
1. The Five-Year Rule. This rule states the IRA must be fully distributed by December 31 of the year containing the fifth anniversary of the owner’s date of death. There are no required distributions in the four years following the owner’s death. The beneficiary can take 100 percent in the fifth year or take one or more distributions in the first four years.
2. Beneficiary’s Life Expectancy Rule. Only a “designated beneficiary” can use this rule. The designated beneficiary uses the single life table (provided by Reg 1.401 (a) (9)-9, A-1) using the designated beneficiary’s age in the year following the year of the owner’s death. The applicable divisor is reduced by one each subsequent year. The RMD must be taken no later than December 31 of the year following the year of the owner’s death.
3. Owner’s Life Expectancy Rule. This rule is the same as the Beneficiary Life Expectancy Rule except the divisor is based on the IRA owner’s age in the year of death, reduced by one of each subsequent year. This rule is only used if the owner dies after the required beginning date. Under this rule, the RMD must be taken on or before December 31 of the year following the year of the owner’s death.
Non-spouse Individuals as Beneficiaries
1. If the owner had reached his or her required beginning date, the beneficiary may use the longer of owner’s Life Expectancy Rule or Beneficiary Life Expectancy Rule to determine RMD.
2. If there is more than one beneficiary, all beneficiaries must be individuals to use Beneficiary Life Expectancy Rule and must use the age of the oldest beneficiary. The beneficiaries may create separate accounts by December 31 of the year following the owner’s death, and then each beneficiary may use her or his own age to calculate the RMD.
The Spouse is Designated Beneficiary
1. The spouse may recalculate life expectancy each year and use a new division from the Single Life Table.
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