If you have recently inherited an IRA, it’s crucial to understand how to manage the funds. One of the essential things is calculating your Required Minimum Distributions (RMDs). This can be tricky, but luckily we have a calculator that can help make the process easier! This guide will walk you through how to use the calculator and explain some of the most important things to remember when managing an inherited IRA.
Beneficiary IRA RMD calculator
As the beneficiary of a retirement account, specific regulations mandated by the Internal Revenue Service determine your minimum withdrawals. Therefore, if you wish to delay taxes as much as possible, these must be followed precisely. Luckily, this calculator simplifies things by helping you determine exactly what your Required Minimum Distributions (RMD) should be! So why not take advantage and start planning for a tax-deferred future today?
What is an Inherited IRA?
An Inherited IRA is a type of IRA that is passed down from a deceased individual to a designated beneficiary. The beneficiary can be an individual, a trust, or an estate. When the original owner of the IRA passes away, the beneficiary becomes responsible for distributing the assets.
Types of Inherited IRAs
There are two main types of Inherited IRAs: traditional and Roth. Each type has its own set of rules and regulations that the beneficiary must follow.
- Traditional IRAs are funded with pre-tax money and incur taxation when the funds are withdrawn.
- Funding a Roth IRA with after-tax dollars allows its funds to grow without ever being taxed. This means the beneficiary won’t need to worry about paying taxes on distributions they receive from it.
Inherited IRA Distributions
Inherited IRAs have different distribution requirements than traditional IRAs. The beneficiary is required to take distributions from the IRA based on their life expectancy. These distributions are known as Required Minimum Distributions (RMDs).
The RMD amount is calculated based on the beneficiary’s life expectancy and the balance of the IRA. The beneficiary must take the RMD by December 31st of each year. If the beneficiary fails to take the required distribution, they may be subject to a 50% excise tax on the amount that should have been distributed.
The original owner of the IRA needs to designate a beneficiary on the account properly. This will ensure that the assets in the IRA are passed down to the intended recipient.
If the original owner passes away without a designated beneficiary, the IRA assets will be passed down to the individual’s estate. This can result in a more extended distribution period and potentially higher beneficiary taxes.
Helpful Tip: If you need a cheap service to set up your entire estate plan, we recommend:
Inherited IRAs and RMDs can be complicated, but beneficiaries must understand the rules and regulations surrounding these accounts. By properly designating a beneficiary and taking the required distributions, inheritors can ensure that they can make the most of the assets they have received.
A diagram explaining the distribution process of Inherited IRAs and RMDs can help understand the process visually.
It is recommended to seek the guidance of a financial advisor or tax professional when dealing with Inherited IRAs and RMDs. They can help ensure you follow the rules and regulations and maximize your Inherited IRA’s benefits.
Request A Quote
Get help from a licensed financial professional. This service is free of charge.
Frequently Asked Questions
How do you calculate RMD for an inherited IRA?
To calculate the least amount that must be withdrawn, divide your IRA balance by its distribution period. However, member: The life expectancy payment is merely a baseline; any beneficiary may withdraw more than this minimal amount, including one-time lump sums.
Can you aggregate RMDs from inherited IRAs?
If you benefit from multiple inherited IRAs from one decedent, you can pool the required minimum distributions (RMDs) into a single account and withdraw from that. However, if those accounts were provided to you through various decedents, combining RMDs is not permitted.
What is the IRS penalty for not taking an RMD from an inherited IRA?
Suppose you inherited an IRA subject to the 10-Year Rule and neglected to remove your Required Minimum Distributions (RMDs) in 2021 or 2022. Unfortunately, you will be subjected to a 50% penalty for the amount that should have been withdrawn.
What is the five-year rule for inherited IRA RMD?
You must adhere to the 5-Year Rule of Inherited IRAs if you withdraw any earnings from such an account. This rule states that the IRA must have been established at least five years before the passing away of its original holder for withdrawals to be valid.
*Disclosure: Some of the links in this guide may be affiliate links. I may receive a commission at no cost to you if you purchase a policy. It helps us keep the lights on!