WEBVTT 00:00:01.840 --> 00:00:33.620 When it comes to understanding inherited IRA rules, things are definitely more confusing now than they were before the SECURE Act, but hopefully this will serve as a guide for you and you can look back at it over time. Welcome to Retirement Answers, a podcast built to answer your most pressing retirement questions. If you're someone who's either thinking about retirement or already in retirement, well, you're in the right place. Hey there, my name is Jacob Duke, and each week I'll be walking through different tips and strategies to help you succeed in retirement. So let's go ahead and get started with today's show. 00:00:38.605 --> 00:01:08.025 Hey friends, welcome back to another episode of Retirement Answers. My name is Jacob Duke, I'm your host as always. This week we're going be talking about inherited IRAs and what to do or what to know whenever you receive one. There's a lot of confusion here, especially post 2020 because in 2020 that is whenever the Secure Act was instituted and was formalized, and that's whenever the rules changed for inherited retirement accounts. So pre 2020, there's a different set of rules and now 2020 and after there is a new set of rules. 00:01:08.025 --> 00:01:21.000 We're going go through both of these really quickly. We're going go through the old ones really quickly. We're going to stick a lot of our time. We're going to stick to the new rules because that's where a lot of confusion comes up. So today I wanted to be clear on the front end, like this is going to be fairly technical. 00:01:21.240 --> 00:01:46.860 There's really no way around the technicalities of this in order to get the answers we're looking for. So just know that on the front end, if you have to stop or pause, that is totally fine to digest or understand what we're talking about. Or if you have to rewind or go back and listen to the whole thing again, don't worry about that because it is hard stuff to kind of wrap your mind around. So here's what we're going do. We're going to spend most of our time on IRAs, but we'll quickly review what happens with non retirement accounts. 00:01:46.860 --> 00:02:10.075 So that could be brokerage accounts, could be a house, could be real estate, it could be anything other than a non retirement account. We're going talk about what happens with those really quickly just as recap or refresher. We're also going to talk about beneficiary types for IRAs. So the Secure Act Institutor created an additional beneficiary type, and so now there are three beneficiary types. We're going to talk about who those people are and how they work. 00:02:10.630 --> 00:02:36.565 We're also going to talk about new RMD rules under the Secure Act and the ten year rule. That's the thing we most of us know about if we've been paying attention. So we're going to break that down based on how those rules work, but also break it down based on account type because there's different rules for different account types being Roth or traditional or tax deferred. And so then finally, wanted to share an update or something that's being paused on some of these rules here in 2024. So be sure to stay to the end for that. 00:02:36.565 --> 00:03:12.860 All right, let's jump in. So first let's talk about non retirement accounts or non retirement assets. This can be things such as brokerage accounts, it could be real estate, other real property, it could be bank accounts, anything that's just not an IRA, a four zero one ks, four zero three b, a TSP, anything like that. These rules are simpler for the most part around these types of accounts. So, for example, if you have a brokerage account and you own that with a spouse or you own that either individually, what happens is whenever that goes to the next person, if it's a spouse that you co own that account with, that spouse, they assume your portion as their own without any other changes. 00:03:12.860 --> 00:04:00.345 So it just happens that way and they receive that money or it's already theirs, I guess, technically, so they don't have to have any changes to their accounts. Now if it's an individually owned account and let's say it goes from a father to a son, in terms of the son being the one inheriting that account, what happens then is that son receives what's called a step up in basis. And all that really means is, let's say that the dad bought a stock, let's say for $100 a share, and then now it's worth $200 a share. Well, that growth, that $100 of growth that's happened from the point of purchase until it was inherited by the son, that is now not taxable, meaning the new basis or the amount that was purchased for by the son is $200 which is the value today or at the time of death, and so therefore the son does not have to pay any taxes on those gains. And this is across the board. 00:04:00.345 --> 00:04:39.120 So if you have real estate, it receives that same treatment. If you have brokerage accounts, it receives that same treatment, what's called a step up in basis. So this is a big deal when it comes to inheriting or leaving money to the next generation. If you have non retirement assets in a brokerage account or in real estate properties, they get to receive that step up in basis whenever you do pass away and leave that to them. Another big point on non retirement assets such as a brokerage account is there are no RMDs, no required minimum distributions, meaning you do not have to take any money from those accounts whenever you receive those or inherit those, which is also another big plus, meaning you can let that continue to grow if it's growing. 00:04:39.535 --> 00:05:10.545 And then whenever you pass that to the next generation, they would receive that step up in basis. So again, it's a tax free way in some sense to leave assets or investments to the next generation, which is a huge plus of the non retirement assets. Now the reason that you get that is because you do not get a tax deduction on the front end, meaning you did not get to deduct the money that you contributed or added to your brokerage account. You do not get to deduct that on the front end from your income, nor do you get to have tax free growth. You get to pay your taxes every year along the way if you have dividends or interest or capital gains or something like that. 00:05:10.785 --> 00:05:54.900 But the benefit of doing it that way, or of the account type, is that you get to have that type of basis there in the future. So one point of clarification I did want to make here is that whenever you have a joint account, such as between a husband and a wife, in all states except for community property states, which is nine, so there are nine community property states. In the states that are not community property states, the portion that is allocated towards the husband, let's say the husband passed away, so 50% of the account value, only that 50% gets a step up in basis. And the portion that's allocated towards the wife who is still surviving, that portion is not going to step up in basis. Now in community property states, which is nine states here in The US, the entire value of the account gets a step up in basis. 00:05:55.140 --> 00:06:13.925 So that's a little bit different there. A difference, I guess, if you will, on the joint accounts and determining what step up in basis actually happens if it is a joint account shared between spouses. So just know that that's a little bit different. You might want to dig deeper into that if it is something of issue for you. So that's basically non retirement accounts. 00:06:13.925 --> 00:06:43.595 You get to receive those with a step up in basis, which is huge. There's no RMDs, which is awesome as well. So I love the non retirement accounts or taxable brokerage accounts because they are flexible in that way, both while you're living, but also they are beneficial in terms of potentially a tax free transfer to the next generation down the road. Okay, so that's really quickly just a brief recap. There's more probably there, but I wanted to really dive in and spend our time on IRAs or Roth IRAs or just retirement accounts in general. 00:06:43.595 --> 00:07:12.945 So let's say that you inherit a retirement account from someone. The first question is, what type of account is it? Is it a tax deferred account such as an IRA, four zero one ks, four zero three b, etc? Or is it an after tax account such as a Roth IRA, Roth four zero one ks, Roth four zero three b, etcetera. The reason for that is they are taxed differently, both while they're alive, the person was alive, but also taxed and operate differently on the back end after someone passes away and they are, passed to the next generation. 00:07:12.945 --> 00:07:38.725 So after you know what account type you have inherited, you're going need to ask yourself, well, what type of beneficiary you are. So under previous legislation, this is Pre Secure Act or Pre-twenty twenty, you fell into one of two categories really. You were either a designated or a non designated beneficiary. So you have designated on one side and non designated on the other. To kind of keep it simple, we'll talk about the non designated beneficiaries first. 00:07:38.805 --> 00:08:04.485 A non designated beneficiary is a charity, your estate, or certain types of trusts. Okay? And so that's, I would say, a rare event for the most part. Most of the time under the old rules, everyone fell into the designated category, which is simply everyone else. So this is a spouse, this is a child, this is a grandchild, this is anyone who is not a charity, your estate, which it's impossible to be your estate as a human. 00:08:04.565 --> 00:08:36.955 And then also certain types of trusts. So those are the rules of pre secure act or pre 2020 that we operated by. Now that we're post 2020, the rules are different. We're going to talk to those in just a But the big deal here was that anyone who is not a non designated beneficiary, meaning they are a designated beneficiary, they got to receive stretch options or stretch provisions whenever they inherit an IRA or a Roth IRA or some sort of retirement account. Meaning they get to stretch the RMDs, the Required Minimum Distributions, those can be stretched over their lifetime. 00:08:37.195 --> 00:09:05.365 And the benefit of this is that you get to reduce your annual taxation on the distribution amount, as opposed to if you had to take it all at once via a lump sum. Let's say you received a million dollar IRA from your parents, for example. Well, if you have to take all that at once, then you have to pay income taxes on a million dollars plus what other income you're earning. Under the stretch provision, you get to take a little bit out every single year based on your life expectancy. And that's calculated using the uniform single life table. 00:09:05.365 --> 00:09:23.470 So even if you were a non spouse, would begin taking your RMDs over the rest of your life under that stretch provision. So this is for spouses and also non spouses. Remember, we're talking about the old legislation. So pre 2020, pre secure act. So when I say stretch, all that really means is you could spread out those RMDs over the rest of your life. 00:09:23.710 --> 00:09:50.610 And what happens here is that percentage that you have to take out every year is that's technically increasing over time. But depending on how that account is managed or invested, you could be either increasing in total dollars that you're having to take out, or you could be decreasing. So it really depends on the balance of the account every single year at the end of the year. So for an example, under the old rules, let's say that two people inherit $100,000 IRAs. One person is 25 and the other is 65. 00:09:50.770 --> 00:10:16.400 They both have to begin taking their RMDs in the following year, inheriting that IRA. But the 25 year old's RMD is going be much smaller than the 65 year old's and that's because of their age. So going back to that uniform life table, it's based on your life expectancy moving forward. So obviously the 65 year old has a smaller number of years that they are expected to live compared to the 25 year old. Therefore, the first year RMD for each of those are going to be drastically different because of their ages. 00:10:16.400 --> 00:10:51.205 And again, the biggest benefit of the stretch provision is that you can stretch out that tax liability over many years rather than having to take everything all at once, or even in a short number of years creating a large tax bill for yourself. So that's a quick recap of the old rules, and those still apply to any IRAs or 401Ks that you've inherited prior to 01/01/2020. So if you inherited a retirement account before 01/01/2020, those are the rules that you still get to operate on under your grandfathered in, which is a benefit to you. You don't have to operate by the new rules. So let's talk about those new rules. 00:10:51.365 --> 00:11:10.370 On 01/01/2020, the Secure Act was ushered in and it created new rules for inherited IRAs. These rules require more planning, for sure, and they're less favorable for inheritors kind of in general. There is more to know just on all of it, it's definitely more confusing. That's why we're spending a lot of time here today. So why these rule changes? 00:11:10.370 --> 00:11:43.880 Well, if you think about it, the IRS forces distributions from tax deferred accounts in retirement once you reach a certain age. Even So while you're living, we have what's called RMDs, Required Minimum Distributions. And the purpose of that is, as well, you've got a tax deduction to put the money in, you have not paid any taxes on that income yet, and so you've deferred that into the future. And they're like, well, finally, we're going to make you pay tax starting at this age if you have not distributed your IRAs yet. So that's kind of the thing is they're forcing you to take your money out so that they can finally receive their income tax that they have not been paid yet. 00:11:44.120 --> 00:12:21.675 So whenever we think about the SECURE Act and whenever you are receiving an IRA, well, same thing happened under stretch provision under previous legislation is you could stretch out those RMDs that you're required to take as an inheritor or as a beneficiary. You could stretch those out over the rest of your life, which is again, prolonging when the IRS gets those taxes or receives that tax money from you. So what they're doing in the SECURE Act is they're saying, we want to condense that time period down and almost force you to take it in a shorter amount of time so that we can get our money faster. So that's the overall reasoning behind why the Secure Act has some of these new rules instituted. So let's dive in a little bit. 00:12:22.075 --> 00:12:39.730 These are rules that apply after 01/01/2020, like I mentioned earlier. But first, let's talk about the different types or categories of beneficiaries. So you have three main types of beneficiaries. The first one is eligible designated beneficiary. The second one is designated beneficiary. 00:12:39.730 --> 00:12:54.505 And the third one is non designated beneficiary. Now the second one there that I said was called designated beneficiary. You could think of it as non eligible designated beneficiary if you'd like to. There's eligible and there's non eligible. Then you have the third one, which is non designated beneficiary. 00:12:54.505 --> 00:13:33.330 So three different types of beneficiaries, we might be confused already, but what we're going to do is we're going go by each type and kind of explain some of the rules here. So, if you are to be an eligible designated beneficiary, you have to be a spouse, you have to be a disabled person, you have to be chronically ill, you have to be anyone that's not more than ten years younger than the decedent or the person who died, and you could be a minor child. So there's five different types of people that could be an eligible designated beneficiary. The most common out of these options here is a spouse. Sometimes you could have number four, which is anyone who is not more than ten years younger than a decedent. 00:13:33.330 --> 00:14:16.665 So an example of that might be, let's say you have a sister who passed away and you're four years younger than her and she named you as the beneficiary of her IRA, you would technically be qualified as an eligible designated beneficiary because you are only four years younger and not more than ten years younger than she was. So that's sometimes a beneficiary type that could come up, but most common for the eligible designated beneficiaries, it's going to be a spouse. So the rules for these eligible designated beneficiaries, I'm going to refer to them as EDB from here on out, just so we can kind of do it a little bit faster instead of saying that over and over and over. They're the same as they were before. So whenever we think of the two different categories we had pre-twenty twenty, you had designated and non designated beneficiaries. 00:14:16.665 --> 00:14:47.510 Well, the eligible designated beneficiaries, the EDBs, they are the same thing as the designated beneficiaries we had pre-twenty twenty. So all of the rules apply to the EDBs the same way they did before that we're kind of used to. So this means that you can treat your IRA as your spouse and you're receiving that from your spouse who passed away. You can choose to continue being the beneficiary of the account and then distribute the assets over the rest of your life, which is the stretch provision, so that's still intact for these EDBs. Or you can use the ten year rule if you so choose. 00:14:47.510 --> 00:15:24.840 So you kind of have three options there as an EDB when it comes to how you want to distribute those funds. So this is the most favorable beneficiary type from a flexibility and a tax standpoint. And 95% of the time, like I mentioned earlier, the spouse is going to be the eligible designated beneficiary that we're looking at here, even though there are four other types, they're just much less common. The only point of clarification here I wanted to make for minor children as an EDB is that the stretch provision only applies until they reach that age of majority. At that point, the child is no longer an EDB and they become a designated beneficiary. 00:15:24.840 --> 00:15:56.250 So they go from eligible to non eligible designated beneficiary. So for an example, quickly, if you have a 13 year old child and they receive an IRA from their dad, they have to begin taking distributions under the stretch rule immediately, right? So stretching that out over the rest of their life. So whatever the uniform single life table it kind of says they have to take, they have to begin that at their age of 13. But when they reach that age of majority, the 10 clock starts, meaning they have to begin taking that out or have to have that money out by the end of that tenth year. 00:15:56.250 --> 00:16:14.980 And I'm gonna talk about the ten year rule here in-depth here in just a moment. So just kind of keep that in the back of your mind. Also for stretch provisions to be available for a minor child, that child must be the child of the deceased. So this does not apply to a minor child who is the grandchild or niece or nephew of you. It does not apply to them. 00:16:14.980 --> 00:16:45.670 Has to be a child that is yours. So those types of minors, they would be designated beneficiaries and they would not be eligible designated beneficiaries if they're a grandchild or a niece or a nephew. So the moral of the story here for naming minors as of a retirement account is simply don't do it. It's just not wise or smart. What I would say instead is this create or open or build a trust that is specifically meant for the purpose of leaving assets that are specifically retirement assets to children or grandchildren. 00:16:45.670 --> 00:17:21.310 So again, that's an estate planning kind of thing, which all of this falls into the estate planning realm. But I would say that if you're going to leave assets to a minor, I would say always leave that in a trust somehow. So you would name a trust that you've created as the beneficiary of your IRA, and that trust would be for the benefit of those minor children. I would not name children outright as the beneficiary because even then, a minor cannot receive or distribute assets to themselves out of the IRA. So technically a guardian or someone has to distribute those funds out under the stretch provision, even if they are under the age of majority, they have to take that money out. 00:17:21.470 --> 00:17:41.085 But then once they do reach the age of majority, the child actually assumes the right to distribute that money. They have to do that within that ten year period. Okay, so that's an eligible designated beneficiary. The main thing there is you can continue to stretch. You can do the stretch provision, and most of the time there's going be a spouse who's the person that qualifies for this. 00:17:41.085 --> 00:18:15.060 So let's talk about non eligible designated beneficiaries or simply just a designated beneficiary. There's going to be a non spouse in a certain type of trust, and most of the time this is what's called a see through trust, meaning the money's not actually held inside the trust, it has to be distributed out via the terms of the trust. So if you're a non spouse, so let's say you're a child, a grandchild, anyone who is not married to the person who passed away, you are a designated beneficiary. And the biggest changes that we're talking about here are gonna be for this group. This is gonna be the largest group of beneficiaries outside of spouses. 00:18:15.380 --> 00:18:45.410 And this is where we're gonna spend a lot of our time. So the biggest change is this, is the new ten year rule. And maybe you've heard of this over the last couple of years, but let's kind of clarify it and really digest and understand what's going on here. So we've got a ten year rule, but there's actually a couple different ten year rules, and which one you follow really depends on when the decedent died. So the question you have to ask yourself is this, did they die before or did they die after their required beginning date or their RBD? 00:18:45.410 --> 00:19:12.360 And someone's RBD or their required beginning date is April 1, the year after they reach their RMD age. So for some context here on RMD ages, let's do a quick recap. 70.5 is the RMD age for those who reach age 70.5 before twenty twenty, which is in the past. So if you've already started your RMDs, you're going to continue taking those. It's 72 for those of you who reached 70.5 after 2019 and reached 72 2023. 00:19:12.600 --> 00:19:42.940 And then 73 is the age or the RMD age for those who've reached 72 after 2022 and reach 73 before 2033. And then the RMD age is 75 for those who reach 74 after 2032. So, you might need to pause, go back through that. But just know that if you have not started your RMDs yet on your retirement accounts, your RMD age will be either 73 or 75. So those last two points that we talked about, that applies to you. 00:19:42.940 --> 00:20:11.790 Everyone else would have already started their RMDs, no changes there, wanted to go back in time a little bit and state some of the changes that have happened over the last four years because there have been a lot of changes. It went from seventy point five to '72, and now it's either '73 or '75, depending on your year of birth. So Okay, going back to our question of, did they die? This is for your designated beneficiaries or your non eligible designated beneficiaries. This is for non spouses and certain types of trusts. 00:20:11.790 --> 00:20:55.815 So if you received an IRA, the question we have to ask is, did the person who passed away die before or after their required beginning date or after they started receiving their RMDs? So option one, let's say that the decedent died before their RMDs or before their required beginning date. Under this ten year rule, distributions are optional for the first nine years after the participant's death, and then the account must be fully distributed by the end of the tenth year. So the ten year rule in this situation, it is you do not have to take anything out because no RMDs have started yet. So you're not forced to take any RMDs, but you have to have all the assets out by the end of the tenth year. 00:20:55.815 --> 00:21:34.630 So that's for someone who has passed away and they have not yet started their RMDs, meaning they did not reach that required beginning date before they passed away. Now, option two, in terms of which ten year rule applies, is for whenever the decedent passed away after their required beginning date. Under this ten year rule, annual RMDs must be taken over the life expectancy of the beneficiary beginning December 31 of the year that follows when the when the decedent passed away. In addition, the Inherited IRA must be distributed by December 31 of the tenth year following decedent's death. So this is different from the first one. 00:21:34.630 --> 00:22:11.570 The first option in terms of which ten year rule applies, there are no RMDs in years one through nine, but the full account has to be distributed or liquidated by the end of the tenth year under option two being the decedent died after they started their RMDs. The ten year rule is this: they have to take an annual distribution or required distribution if you receive that account as a beneficiary. To take that the first nine years and still by the end of the tenth year, the full account has to have been distributed out. So the key here is that those RMDs are based on your life expectancy using that uniform single life table, right? So that's the thing to know. 00:22:12.135 --> 00:22:51.715 And so those RMDs could be fairly small if pretty young, but still by the end of the tenth year, you have to distribute that money out. So as a designated beneficiary or as a non eligible designated beneficiary, these are your options. The main thing to know here is that you must distribute all the funds from the account by the end of the tenth year, regardless of whether or not the decedent passed away before or after their required beginning date. And so the difference again between the two year rules here is whether or not the decedent passed away before or after their required beginning date. And if they passed away after it and had already started their RMDs, they have to be continued those first nine years after you as the beneficiary received that account. 00:22:51.715 --> 00:23:26.670 And then by the end of the tenth, the full account has to have been distributed. And the reason that you have to continue taking RMDs or have to take mandatory distributions in those first nine years is the IRS kind of thinks that once you've turned on an RMD, you can't really turn it off. And so the person who passed away and you received that account from them, if they had already started their RMDs, you can't turn those off and wait till the end of the tenth year. You have to continue taking RMDs even though they're likely going to be a smaller amount that are mandatory because you are younger than the decedent. So just know that that's maybe the reasoning why. 00:23:26.670 --> 00:23:41.455 It's kind of like a faucet. They think once you turn it on, you can't turn it off. So that's just maybe some of the reasoning there on why that is the case. And so your question might be, Jacob, what about Roth IRAs? So far we've talked primarily about traditional IRAs or 401ks, any sort of tax deferred account. 00:23:41.455 --> 00:24:16.925 And that's a great question. And so right here I wanted to kind of explain, Roth IRAs are always treated as if the decedent died before their RBD or their required beginning date. And the reason for this is because there are no lifetime RMDs on Roth accounts, whether it be a Roth IRA or a Roth four zero one ks. And so Roths are always assumed to have been passed down prior to the decedent's required beginning date because there are no RMDs at that point. So that means that Roth IRAs, they have to be fully distributed by the end of the tenth year, but there are no mandatory distributions in those first nine years. 00:24:16.925 --> 00:24:48.765 And this is good news because that means that you can let your Roth that you've received or inherited, you can let that continue to grow over those ten years and then make sure you have all of it distributed out by the end of the tenth year. But that growth continues to happen tax free. And so you get to receive even more money tax free than if you were forced to take out a certain amount every year over that ten year period. So that's how Roth IRAs work in terms of inherited Roth IRAs. You do have to have all that money distributed out by the end of the tenth year, but just know that there are no forced or mandatory distributions in years one through nine. 00:24:48.845 --> 00:25:15.975 You can continue to let that grow over that ten year period. And then finally, in terms of the final type of beneficiary here is a non designated beneficiary. This is the third type that was created under the Secure Act, which is the same as it was pre Secure Act. But we have charities or your estate that fall in this category and all assets that go to these different types of beneficiaries, they must be distributed within the five years. And this is unchanged from the Pre Secure Act rules. 00:25:15.975 --> 00:25:59.080 So a charity has to distribute all of the retirement account assets by the end of the fifth year. And then your estate, which is, I think, really important reason to emphasize, like we have to, or you should be naming a beneficiary of some type on your retirement accounts, your four zero one ks, your IRAs, your 403Bs, whatever you have, name a person, name a trust, name something on the account. Because what happens is if you don't, your estate is the thing that receives it and that has to be distributed out over before the five year period is up. And that means more taxes on the estate level, but also potentially for your heirs getting less money one day in the future as well. So let's kind of walk through some examples here to see if we can make sense of all of this. 00:25:59.160 --> 00:26:30.620 So the first one I've got is, let's say we have a million dollar IRA and you're a spouse, which means you are an eligible designated beneficiary. You have a couple options, and we've talked about this earlier. You can assume the IRA as your own, which means you could follow your own RMD rules. So let's say your spouse was 68 whenever they passed away and you're 64. If you assume that as your own, that means that your RMDs on that account would start later because you would not get to age 73 or 75 until later after your spouse would have gotten there. 00:26:31.065 --> 00:26:47.280 You could also just remain the beneficiary of the account and do stretch distributions like we talked about earlier. That stretch provision is still available for eligible designated beneficiaries. Or you could use that ten year rule if you'd like. You probably want to use one of the first two options. This example is fairly straightforward. 00:26:47.280 --> 00:27:30.685 So a spouse, you can either assume it as your own, like you always have been able to, or you could stretch it into the future, kind of like you always have been able to as well. All right, scenario number two. Let's assume that you have the same $1,000,000 IRA that you inherited, but now you're inheriting it as a daughter from your father who passed away. This means you are a designated beneficiary, not an eligible designated beneficiary. And let's say that your dad, for this example, died before his required beginning date, so before his RMD started, that means that you have to distribute that $1,000,000 by the end of the tenth year, but you do not have to take any distributions in years one through nine, meaning you don't have any mandatory distributions you must take in any of the years except all that has to be out by the end of the tenth. 00:27:30.925 --> 00:28:24.330 And so that's how that would work, just as a quick planning tip here, you'll likely want to do some sort of distributions annually even though you don't have to. And the reason for that is if you wait all the way to the end of year ten and take it, you're going take a million plus dollars out of this account at one time, and it's all going to be taxed as normal income, which means a big chunk of that is going to be taxed at the highest possible tax rate, to whereas if you had distributed a portion out over the ten years kind of consecutively, you would have paid less tax overall on the full sum. So more money could be in your pocket if you planned it out correctly. So scenario three, let's assume everything is the same as the one I just mentioned, but your dad passed away after his required beginning date, which means he was taking his RMDs already. Well, in this situation, going back to what we talked about earlier in terms of the two different ten year rules that we've got to know about, you would be required to take annual distributions based on your single life expectancy, like we referred to earlier. 00:28:25.075 --> 00:29:01.945 And then also on top of that, the account will have to have been distributed fully by the end of that tenth year. So the only difference between scenario two we just talked about and this one is that you have to take out your distributions years one through nine. That's based on your life expectancy, not your dad's or not whatever distributions he was taking. Regardless, by the end of that tenth year, all money has to be taken out and taxes have to be paid on it. So, you do have required distributions, but again, it might be a good idea to take more than the required amount because your required distributions are probably going to be less than what you probably should be taking if you want to lower your overall tax bill on the $1,000,000 you've inherited. 00:29:02.730 --> 00:29:39.490 And for this final scenario, let's say that you inherit that $1,000,000 IRA from your brother and you are only four years younger than him. Even though you're a non spouse beneficiary, you still qualify as an eligible designated beneficiary because remember there's a few different rules there, but it's because you are not more than ten years younger than your brother. So you're only four years younger, which means you qualify as an eligible designated beneficiary. That means you get to stretch the distributions or the RMDs from the IRA that you've inherited over your life, or you can use that ten year rule. You cannot assume the IRA is your own because you're not a spouse. 00:29:39.650 --> 00:30:11.380 Provision's only available to spouses. So the key here is, is you're eligible designated beneficiary and you get to stretch that million dollars over your life expectancy rather than have to take it out over that ten year period like we just referred to for the other two scenarios that we just looked at. So, I hope this is starting to make some sense and I hope it didn't make it more confusing. It's definitely a hard topic to wrap your mind around. It's been an interesting and fun topic for me to kind of think through and write for this particular episode. 00:30:11.380 --> 00:30:46.295 So it's been something that's helped me a ton. There's just a lot here. So before I let you go, I wanted to give you one final tip and then also wanted to share with you the new kind of update that I need to share with you here for 2024. So the tip for you is this, if the decedent that had passed away that you received an IRA from, if they had already started their RMDs and they had not taken their RMD for this year or the year in which you inherited the account, you must take that RMD for them by the end of that year. So let's say that your dad passed away and he was already taking his RMDs. 00:30:46.455 --> 00:31:22.300 Well, you're going to follow the ten year rule that applies to that situation. But before we get there, you have to, if he had not taken his RMD for the year, which a lot of people kind of wait till the last quarter or so, but let's say he passed away in September and he had not taken his RMD yet, his RMD for that year has to be taken out and you're the one who has to take that out for him. So just know that you have to do that, and that R and B is calculated based on what his amount should have been for that year. It's not based on your single life table. But then also, it's important to know that that income falls onto your tax return, doesn't fall onto his or anything like that. 00:31:22.300 --> 00:31:55.400 So death will pretty much get you out of anything except for RMDs, which is really interesting. So I see that this is missed a lot and it's because of the shuffle most of the time with losing a spouse or a loved one or something like that where it's like, Man, that's the last thing on my mind to think about taking an R D for somebody. So just know that if that happens and they had not taken their R and D and they should have in that tax year, you as the beneficiary are responsible for doing that. And it's the amount that they should take if they were still alive, but it goes on to your tax return. So again, somewhat confusing, but that's something that gets missed a lot. 00:31:55.400 --> 00:32:18.460 Wanted to share that with you. All right. So here's the new ruling for 2024 that's kind of hot off the press that I wanted to share with you. The IRS will not penalize anyone who is subject to the ten year rule and does not take their RMD in 2024. This means that the IRS has waived annual RMDs for beneficiaries of IRA owners who have died in 2020, 2021, 2022, and now 2023. 00:32:18.460 --> 00:32:49.430 So the first four years of this Secure Act being in place, the rules that I just talked about earlier, technically they don't apply for those who have to take the RMDs in years one through nine. So they don't apply yet, meaning you're not penalized if you don't take it, but it might be wise to take those RMDs anyway. And I'll talk about why in just a second. This ruling does not waive RMDs for those who are subject to RMDs over the lifetime, meaning they're doing the stretch provision. It only applies to IRA Inherited who are underneath that ten year rule that we talked about just a minute ago. 00:32:49.430 --> 00:33:16.660 So if you decided to do a stretch provision as an eligible designated beneficiary, this rule does not apply to you. You still must take your distributions like normal. This only applies to those who are under the ten year rule based on the new ten year rules that we just talked about a second ago. Also, if you inherited an IRA prior to 2020, your RMDs under the stretch provision that was taking place back then, those are not waived. Still have to continue taking your RMDs there as well. 00:33:16.660 --> 00:33:43.350 So you might be thinking, Jacob, this is great news. I don't have to take my RMD. Well, maybe, but what this does not do is it does not push back the ten year clock. So that ten year window, it still began whenever the decedent passed away, which means that the account must fully be distributed by the end of that tenth year. It just means that up until this point, any annual RMEs that you were required to take, those have been waived and no penalties will be assessed, but still by the end of that tenth year, the account has to be fully distributed. 00:33:43.350 --> 00:34:27.845 So if someone passed away in 2021 and 2022 is the first year you should have started taking RMDs based on your life expectancy in years one through nine, well, by the end of that tenth year, which would be in 2032, that means that you have to have that full amount distributed by then, even though you have not had taken RMD yet. So just know that that ten year window, that ten year clock started whenever they passed away, even though they're not assessing penalties on the distributions that you should be taking. So hopefully this has been helpful for you when it comes to understanding Inherited IRA rules. Things are definitely more confusing now than they were before the SECURE Act, but hopefully this will serve as a guide for you and you can look back at it over time. If it was helpful for you, please share it with a friend or family member that can also benefit from it. 00:34:28.165 --> 00:34:42.330 If you have any follow-up questions, feel free to reach out to me on email. It should be down in the description below. You can shoot me an email and I'd be happy to have a conversation with you and clarify anything that doesn't make sense. So thank you for tuning in to this week's episode of Retirement Answers. I look forward to talking with you again next week. 00:34:44.570 --> 00:35:07.380 Hey, it's Jacob again, and I wanted to extend a quick offer to you. If you have a question and you would like to have it answered here on the show, please email me at jacobretirementanswers dot net. And I'd love to answer that question for you right here on the show. Also, wanted to remind you that nothing discussed in today's episode is meant to be financial, legal or tax advice. Retirement Answers is for educational purposes only. 00:35:07.380 --> 00:35:11.220 Thanks for tuning into this week's episode. I look forward to talking with you again next week.