Review July 2024 inherited IRA rules, annual withdrawals, the ten-year deadline and limited 2024 relief before setting a beneficiary withdrawal plan.

July 22, 2024 · Financial Forte Staff

Historical article: prepared retrospectively using information available as of July 22, 2024.

If you inherited an IRA and heard that you have ten years to empty it, you may have understood that as permission to leave the account untouched until the final year. The required minimum distribution regulations announced in July 2024 make that assumption worth revisiting. Depending on the circumstances, annual withdrawals and a ten-year deadline can both apply.[1]

Begin with the facts of the inheritance: the owner's death year, whether the owner had reached the required beginning date, the account type and your beneficiary classification. Those details determine which rule to examine. A general headline about inherited IRAs cannot establish your withdrawal schedule.

Identify the beneficiary category first

The rules distinguish an eligible designated beneficiary from other designated beneficiaries. Eligible categories include a surviving spouse, the owner's minor child, a qualifying disabled or chronically ill individual, and certain individuals not more than ten years younger than the owner. Each category has conditions; being related to the owner is not enough by itself.[1]

An adult child who does not meet another eligible category will often face a different schedule from a surviving spouse. A trust or estate creates additional questions. The person ultimately receiving money from a trust should not assume the IRA is treated as if that person were directly named.

Gather the beneficiary designation and account documents, along with the owner's birth and death dates. Ask the custodian and tax professional to confirm the classification in writing. If the inheritance passed through another beneficiary, explain that sequence too; a successor beneficiary's situation needs its own analysis.

Separate the annual requirement from the final deadline

For a designated beneficiary subject to the ten-year rule, the remaining account generally must be distributed by the end of the tenth calendar year after the owner's death. The final regulations retain annual required distributions within that period when the owner died on or after the required beginning date, subject to the applicable rules.[1]

Consider a hypothetical adult daughter, Paula, who inherited a traditional IRA after her father died in 2023 at age 80. Assume he was past his required beginning date, his own final-year RMD was satisfied, and Paula is directly named and does not qualify as an eligible designated beneficiary.

Her ten-year deadline is December 31, 2033. That deadline follows the tenth calendar year after the 2023 death, rather than ten years after the July 2024 announcement. The new regulations do not mean she can automatically wait until then to take everything. For distribution years beginning in 2025, she needs to address the annual requirement as well as the final deadline. The calculation depends on the relevant balance and life-expectancy rules; dividing the account by ten is not the annual RMD calculation.[1]

If the owner instead died before the required beginning date and the same ten-year beneficiary framework applies, annual distributions before the final year generally are not required under that framework. That distinction can change the timing options, but it does not remove the need to empty the account by the applicable deadline.[1]

Paula's example concerns a directly inherited traditional IRA with stated assumptions. It should not be applied unchanged to a surviving spouse, inherited Roth IRA, trust beneficiary or an inheritance from an earlier legal regime. Identify the actual arrangement before borrowing someone else's answer.

Read the 2024 relief narrowly

The final regulations generally apply to RMD calendar years beginning January 1, 2025. Separately, Notice 2024-35 provides relief for certain specified 2024 beneficiary distributions, including qualifying cases involving owners who died in 2020 through 2023 on or after their required beginning dates. For the specified missed distributions, the notice provides relief from the applicable excise tax; it is not a blanket cancellation of all 2024 RMDs.[1][2]

Under the assumptions in Paula's example, the notice's specified-distribution relief is relevant to her 2024 annual beneficiary RMD. It does not reset the ten-year period or move her December 31, 2033 deadline. It also does not excuse an unrelated RMD that falls outside the notice.

Confirm whether relief applies before deciding to skip a distribution. Keep that conclusion separate from whether taking money voluntarily is useful. A year without a required withdrawal can still be a year when a planned distribution fits the beneficiary's tax and cash-flow circumstances.

The July announcement also included proposals on additional issues. Before acting on one of those provisions, ask whether it is final, when it would apply and whether an existing rule already governs your situation. A proposal alone is not a reason to change Paula's withdrawal schedule.[1]

Build a tax plan around the required schedule

Suppose Paula's inherited account holds an illustrative $240,000. Taking $24,000 each year for ten years would total that amount before growth, losses and taxes. Assume those ten calendar years are 2024 through 2033 and no prior beneficiary withdrawals. That simple arithmetic is a planning comparison, not a required withdrawal formula or a prediction that the account will remain unchanged.

Her actual plan may call for different amounts in different years. A lower-income year may create an opportunity to examine a larger distribution; a high-income year may make additional taxable income less attractive. Required minimums still have to be satisfied when applicable, and waiting can leave more to distribute in later years.

Review the withdrawal with the rest of the tax return, including other income and deductions. An inherited traditional IRA can include previously taxed amounts, so confirm the records rather than assuming every distribution is fully taxable. The account's investment mix should also reflect the applicable distribution horizon.[3]

Ask for a schedule that separates the legal minimum, any additional planned withdrawal and the final emptying date. Revisit it each year with updated balances and income information. The useful next step is a documented withdrawal plan based on your inheritance, rather than a ten-year rule remembered from a headline.

Related reading

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Educational information, not personalized investment, tax, legal or benefits advice. Examples use hypothetical assumptions. Verify current rules and your circumstances before acting.

Sources

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