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Inherited IRA & beneficiary tool

Calculate the required minimum distribution from an inherited IRA

If you have inherited a retirement account, generally you must withdraw required minimum distributions (RMDs) from an account each year to avoid IRS penalties. RMD amounts depend on various factors, such as the beneficiary's age, relationship to the beneficiary, and the account value. If inherited assets have been transferred into an inherited IRA in your name, this tool may help determine how much you need to withdraw and which distribution method might work best for your unique situation. Get started below.


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Important FAQs regarding your beneficiary retirement account & RMDs

What is a beneficiary retirement account?

When a person owning an individual retirement account (IRA) or a qualified retirement plan (QRP) passes away, the IRA or QRP assets transfer to the primary beneficiary(ies) listed on the account. If the primary beneficiary(ies) are deceased or disclaim the account assets, then the account assets transfer to the contingent beneficiary(ies) named on the account.

An account transferred to a beneficiary is often called an “inherited” account.

What are the responsibilities of the beneficiary of an IRA or QRP?

A beneficiary must take withdrawal payments out of the account that they inherit within certain time frames. These withdrawal payments are called Required Minimum Distributions (RMDs). The beneficiary is responsible for certain decisions about how assets from the account are distributed. Withdrawals from inherited accounts are generally taxable to the beneficiary(ies) and must be included in their gross income. If you are the beneficiary of a Roth IRA, your withdrawals may not be taxable. You will receive an IRS Form 1099R after the end of the year, showing you the total amount you withdrew during the year.

What is a Required Minimum Distribution (RMD) for a Beneficiary/Inherited IRA or QRP?

An RMD is the amount of money and/or assets that must be taken out by the beneficiary each year by December 31. Distributions must be taken either for your lifetime or on a schedule that would deplete the account within 5 years of the original owner’s death. See “How do I know if I need to take a RMD?” for help determining if you need to take an RMD.

What are the tax implications for RMDs?

The IRS may impose a 50% penalty on the difference between the amount of the full RMD and the amount of the RMD that you’ve taken. You must withdraw the full RMD amount and include the taxable portion in your income. You may not roll it over to another IRA or QRP. You will receive a 1099R tax form after the end of the year showing the amount withdrawn.

Roth IRAs are exempt from the RMD requirements while the person who contributed to the Roth IRA is alive, but Roth Beneficiary accounts must take RMD’s regardless of the beneficiary’s age.

How do I know if I need to take an RMD?

Whether you’ll need to take a beneficiary retirement account distribution depends on three (3) things:

1. The date of death of the original account owner: RMDs will differ based on whether or not the date of death is before April 1st of the year following the original account owner reaching RMD Age. For account owners who were born on or before June 30, 1949, RMD Age is 70 1/2. For account owners who were born after June 30, 1949, RMD Age is 72.

2. Distribution Method: Depending on the date of death of the original account owner, the beneficiary(ies) has certain withdrawal options for their inherited account. The beneficiary's choice of distribution method will dictate whether or not an RMD is necessary.

3. Relationship to original account owner: If the beneficiary is the spouse of the original account owner, he or she will have additional options for taking their RMD. These are explained below and should be considered before making a decision on whether or not to take an RMD.

Does the Coronavirus Aid, Relief, and Economic Security (CARES) Act impact my RMDs?

Yes. As part of the CARES Act, retirement account owners (including Beneficiary RMD account owners) do not have to take required minimum distributions (RMDs) for 2020.

What is the Five-Year Rule?

With the five-year rule option, all IRA assets must be paid out by the end of the fifth year following the year of the IRA Owner's death. There is no schedule for how payments must come out, but the IRA must be depleted by that date. For more information on what options are available to you, enter your information into the Inherited IRA beneficiary tool.

What is the Life Expectancy Payment Option?

With the life expectancy payment option, a minimum amount must be withdrawn each year. To determine the minimum amount, the IRA balance is divided by the distribution period. Note: The life expectancy payment is the minimum amount that must be withdrawn; a beneficiary may always withdraw an additional amount including a lump-sum distribution.

What is a Lump-Sum Distribution?

A lump-sum distribution is a one-time distribution of the beneficiary's share of the IRA assets.

What is a Transfer to Own IRA (Treat as Own)?

A Transfer to Own IRA describes the situation when a spouse is named as sole designated primary beneficiary (or when a financial organization will separately account the spouse beneficiary's share of the IRA assets) by December 31 of the year following the year of the IRA Owner's death. The spouse can then move the assets into a new or existing IRA in his or her own name through an IRA-to-IRA transfer. Alternatively, some financial organizations may allow a spouse, who is the sole designated beneficiary, to treat the inherited IRA as their own. This can be done by redesignating the IRA in the name of the surviving spouse rather than keeping it under the name of the original IRA Owner with the surviving spouse as a beneficiary.

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