Rules change for inherited IRA?

I think someone is deeply confused about RMDs and QCDs. Here is the IRS web page on inherited IRA distributions which says it was updated in December:

If you have an inherited IRA, you usually have to take a RMD every year no matter your age. In 2020 the rules changed making the schedule different, and added some options for spouses to delay RMDs.

You can tell the trustee to send money directly to a charity, known as a Qualified Charitable Distribution, and the QCD counts as a RMD.

Details here:

This reply is nearly as flawed as the premise posted by the original poster. There is generally no requirement to take RMDs. RMDs are an option available to certain beneficiaries. If the beneficiary elects to take distributions over the allowable lifelime, then there are rules for calculating the RMD.

Individual Beneficiaries can be spouses, eligible designated non-spouses, and designated non-spouses that are not eligible designated beneficiaries. Each type of beneficiary has its own rules regarding distributions. The options available to each category of beneficiary are explained in the first reference of John Levine's response:

Look at the rules for Death of the Account Holder occured in 2020 or later for the current rules.

Ira Smilovitz, EA Leonia, NJ

Thanks, John and especially Ira. I have suggested that my friend get a second opinion from an actual tax practitioner, or at least challenge her finance guy about the possibility there have been some miscommunications. (I thought that was more diplomatic than "fire your finance guy; he's giving you _really_ bad advice.")

For myself, my mind is set at rest, and I'll stick with my strategy of naming relatives as beneficiaries of my IRA.

Ira S: I think you answered an unasked question. RMDs are not an option for beneficiaries (forgetting for a moment a surviving spouse who has not reached the RBD). Your own weblink even says that. "Beneficiaries of retirement plan and IRA accounts after the death of the account owner are subject to required minimum distribution (RMD) rules." The weblink explains how the RMD is calculated for the beneficiaries.

The opening sentence is poorly written and contradicted by the explict rules that follow. The 10-year rule is not an RMD. The only requirement is that the entire account be emptied within 10 years. Even without the 10-year rule, any beneficiary can withdraw more than the RMD in any year without penalty (other than the tax liability associated with the distribution).

Given both of those options, and the fact that a non-spouse that is not an eligible designated beneficiary can only use the 10-year rule, I can only conclude that RMDs *are* an option. You don't have to take them, and in some cases you can't take them. In fact, the only case where an RMD is required is for a spousal beneficiary where the decedent's death occurred after the required beginning date and the beneficiary chooses not to roll the IRA into their own IRA account.

As a side note, IRS webpages (and publications, for that matter) are not authoritative sources.

Ira Smilovitz, EA Leonia, NJ

I agree. RMDs had been the rule, but no longer for inherited IRAs,

I would argue that RMDs were never the *rule*, except when the decedent's death occurred after the required starting date. For deaths prior to 2020, there was a 5-year rule.

I think where the confusion comes from is that those who think RMDs are required are starting from the position that all beneficiaries want to stretch the distributions as long as possible. To do that, you must take RMDs. But that starting assumption isn't valid.

Ira Smilovitz, EA Leonia, NJ

According to ira smilovitz snipped-for-privacy@gmail.com:

I think we're nitpicking about what we call a RMD. With the ten year rule, which I think we agree is the most likely one for a non-spouse heir, the minimum is the whole thing but you have a decade to take it.

No matter what kind of IRA you have, sooner or later you have to start taking money out of it, but the rules definitely can be complicated.

If you have a halfway decent IRA custodian, they will do the calculations for you. Mine are at Vanguard and there's a page on my web site which tells me how much I have to take out of each IRA this year, and lets me schedule the withdrawals if I want.

R's, John

John,

I think you are right with the "nitpicking" comment and perhaps I am wrong. I don't consider a 10-year method with distributions of $0, $0, $0, $0, $0, $0, $0, $0, $0, 100% as having RMDs. But technically, it does.

Ira Smilovitz, EA Leonia, NJ

I got it but didn't you overlook the eligible designated beneficiary (e.g., a minor child) who inherits after the owner had reached the RBD. I thought an RMD was still required using the longer of the two life expectancies (owner or beneficiary). I didn't think the 10 year election was available in this instance.

According to Alan snipped-for-privacy@vacationmail.com:

The rules are bizarrely complex. If the beneficiary is a minor child, he takes RMDs based on the longer of his or the decedent's life expectancy, which would be the child's except in very peculiar cases. But when the child turns 18, then the 10 year rule applies and he has to take all the money out by the year he turns 28, EXCEPT that the change can be delayed until age 26 if the child has not completed a "specified course of education", a phrase which seems not to be defined anywhere.

Oh, and I missed a key bit about QCDs. You can only take them if you're at least 70 1/2.