The IRS has done it again. Taken an already unfortunate new rule about inheriting IRAs and made it even worse.
To recap, if you inherited IRA/Roth IRA/Workplace Retirement Account money from someone who died in 2020 or after, the SECURE Act states that you must take that money out of the account within 10 years of the decedent’s passing.
Most people interpreted this as meaning they could take out the money evenly over 10 years. Or all in Year 1. Or all in Year 10. Just as long as the accounts were empty by the 10-year deadline. With this understanding, an inheritor could manage the distribution to come out in years where they were in a lower tax bracket (say, a bad income year for a business owner, or after full retirement).
“Oh, no!” says the IRS. In February 2022, the IRS issued guidelines saying that inheritors must take out some money each year. Don’t worry too much. The guideline doesn’t take effect until 2023 so those who didn’t know about the unknown rule until now don’t owe a penalty for not taking money out since 2020.
How much do you need to take each year? It depends on whether the person you inherited from was taking their RMDs or not. Here is a handy calculator to help determine the withdrawal amount. A better idea is to talk to your accountant about the appropriate amount to take out.
It is not easy to be an investor/taxpayer in America. So many rules, so many changes. Do your best to keep up and if you mess up, ask for forgiveness. It’s usually granted if you are not blatantly trying to cheat the system.