Back in simpler times, before the SECURE Act was passed, people spread out their distributions from inherited retirement accounts over their lifetime, using a simple mortality table. IRA inheritors were then forced to take all the money out in 10 years, a seemingly uncomplicated change until came the IRS interpretations…

If the deceased IRA owner had been taking required minimum distributions, then the beneficiary would fall under an ‘at least as rapidly” (ALAR) rule, which means that the beneficiaries would have to continue taking annual required minimum distributions at least as high as what the preceding owner had been taking. At the end of the 10th year, any remaining assets would have to be distributed in full.

The IRS conceded that the rules THEY CREATED were muddled and agreed to waive all penalties for not taking these distributions for 3 full calendar years (2021-2024), which almost waived the requirement to take them at all. People who did not take those distributions may do so, but that is optional, and the decision should probably be made in light of tax considerations.

As Inheritors weigh their options, they will probably wish that the account owner had converted their traditional IRA to a Roth IRA prior. Roth accounts don’t require distributions up to the 10th year, and there are no taxes on those distributions. Through the fog of the needlessly complex (i.e. galvanizing politicians’ job security) know that we have you covered with all the advanced financial planning strategies covering inheritances.

Read this One-on-One Interview with CIO Sam G. Huszczo, CFA, CFP with ETF.com in the top article below: