A Cheat Sheet for IRA Beneficiary RMDs

It’s been over four years since the SECURE Act shook up the rules for inherited IRAs, and confusion still lingers. Although the IRS issued proposed regulations in February 2022, they haven’t finalized the guidance—and in many cases, they've raised more questions than answers.

Here’s your quick-reference guide to how the rules currently stand for IRAs inherited after 2019. (If the IRA was inherited before 2020, the pre-SECURE Act rules apply.)

Two Key Questions

Whenever dealing with inherited IRAs, you need to answer two crucial questions:

1. Did the IRA owner die before or after their Required Beginning Date (RBD)?
   • The RBD is April 1 of the year following the year the IRA owner reaches their first RMD year (age 73 under SECURE 2.0).
   • For Roth IRAs, the owner is always considered to have died before their RBD.
2. Who is the beneficiary?
   • Eligible Designated Beneficiary (EDB): Surviving spouse, minor child (under age 21), chronically ill or disabled person, or someone not more than 10 years younger than the IRA owner.
   • Non-Eligible Designated Beneficiary (NEDB): Any individual who isn’t an EDB.
   • Non-Designated Beneficiary (NDB): A non-person entity like an estate, charity, or certain trusts.

Cheat Sheet: What Happens Based on Circumstances

1. Traditional IRA Owner Died Before Required Beginning Date OR Roth IRA Owner Died Anytime

• EDB (Non-Spouse):
  • Can elect either:
    • Stretch RMDs over their life expectancy, OR
    • Follow the 10-year rule: Entire account emptied by December 31 of the 10th year after death. No annual RMDs required within that period.
  • (Different rules may apply for surviving spouse EDBs inheriting after 2023.)
• NEDB:
  • 10-year rule applies. Entire account emptied by year 10, no annual RMDs required.
• NDB:
  • 5-year rule applies. Entire account must be emptied by December 31 of the 5th year after death. No annual RMDs required.

2. Traditional IRA Owner Died On or After Required Beginning Date

• EDB:
  • Stretch RMDs apply.
  • If the EDB is older than the IRA owner, they may use the deceased owner’s older life expectancy.
  • However, the inherited IRA must be emptied once the EDB's life expectancy runs out.
• NEDB:
  • Under proposed IRS regulations:
    • Both the 10-year rule applies AND
    • Annual RMDs are required during those 10 years.
  • However, due to confusion, the IRS waived the annual RMD requirement for 2021, 2022, 2023, and 2024.
• NDB:
  • RMDs must continue based on the deceased IRA owner's remaining life expectancy—this is often called the “ghost rule.”

Final Thoughts

As you can see, the rules can get quite technical depending on the beneficiary type and timing. And while some relief has been granted (such as the temporary waiver of annual RMDs for certain beneficiaries), the complexities make professional guidance more important than ever.

Need help navigating your inherited IRA options? Reach out today—let’s make sure your strategy aligns with the latest rules and your financial goals. To book an appointment - click here.

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