Regulations for Inherited IRA Accounts Issued

The SECURE Act and the 2.0 version substantially changed the way inherited retirement accounts must distribute.  These changes are complicated and too numerous for purposes of this post. The general rule is that IRAs should be completely distributed within ten years from the date they are inherited.  There are exceptions (such as spousal inheritors) to the general rule.  

This means that a client who has inherited an IRA is most likely going to have to take all of that IRA into income within the 10 years after he or she inherits such IRA.  This timeline will pass down through to the next beneficiaries.  Trusts that are beneficiaries, if not drafted properly, require distribution in 5 years.  Prior to the SECURE Act, IRAs could be “stretched” over long periods of time depending on the age of the beneficiary.  This is no longer the case.

IRA distribution periods are now shortened to 10 years and sometimes even less. This may be a good time to consider the cost of a ROTH conversion for some or all of your retirement accounts, especially if you are, or anticipate having an estate subject to estate tax.

If you, or a client, have inherited an IRA, consult a tax professional to avoid penalties.