An inherited IRA can boost your finances, but new IRS rules may mean a tax headache
Updated IRS Guidelines on Inherited IRAs: Essential Information for Beneficiaries Regarding Annual Distributions and the 10-Year Withdrawal Requirement.
The IRS recently finalized new rules regarding inherited IRAs, which will take effect in 2025, clarifying some long-standing confusion. These rules impact non-spouse beneficiaries who inherited an IRA after 2020, particularly around the "10-year rule." Under this rule, beneficiaries must fully withdraw the inherited IRA within 10 years.
One significant change is the requirement for annual Required Minimum Distributions (RMDs) for some beneficiaries, especially if the original account holder had already begun taking RMDs before their death. In such cases, beneficiaries are required to take RMDs in years 1–9, with the account fully depleted by year 10. For beneficiaries of account holders who hadn't started RMDs, there is more flexibility—they may take withdrawals at any time during the 10-year period, but the account must still be emptied by the end of that window.
There are also exceptions for certain "eligible designated beneficiaries," such as surviving spouses, minor children, and disabled or chronically ill individuals, who are not subject to the 10-year rule and can take distributions over their lifetime.
Additionally, to ease the transition, penalties for missed RMDs from 2021–2024 are waived, but beneficiaries must start complying with the new rules in 2025 (Solomon, Steiner & Peck, Ltd.) (Kiplinger.com) (ReyRow CPAs).
If you have inherited an IRA, it's essential to review these changes with a tax advisor to ensure proper compliance and to optimize tax strategies.
Read full article here: https://www.usatoday.com/story/money/personalfinance/2024/09/04/inherited-ira-new-irs-tax-rules/75063675007/
