How to Calculate RMD for Successor Inherited IRA
Inheriting an Individual Retirement Account (IRA) can be a significant financial windfall, but it also comes with certain tax obligations. One of the most important tax considerations for successor IRA beneficiaries is calculating and understanding the Required Minimum Distribution (RMD). This article provides a comprehensive guide on how to calculate RMD for successor inherited IRA, ensuring that beneficiaries are well-informed and compliant with tax regulations.
Understanding RMD for Successor Inherited IRA
The RMD is the minimum amount that must be withdrawn from an IRA each year after the account holder reaches age 72 (or the year they turn 70 ½ if they were born before July 1, 1949). For successor inherited IRAs, the rules can be more complex, as the RMD calculation depends on the relationship between the original account holder and the successor beneficiary.
Step-by-Step Guide to Calculate RMD for Successor Inherited IRA
1. Determine the Account Type: The first step in calculating RMD for a successor inherited IRA is to determine the type of IRA. There are two main types: traditional IRAs and Roth IRAs. The RMD calculation methods differ between these two types.
2. Identify the Beneficiary’s Life Expectancy: The RMD is calculated based on the life expectancy of the successor beneficiary. The IRS provides a life expectancy table that lists the expected number of years the beneficiary is expected to live, based on their age. This table can be found in IRS Publication 590-B.
3. Calculate the RMD: Once you have the life expectancy and the account balance, you can calculate the RMD. For traditional IRAs, divide the account balance by the life expectancy factor from the IRS table. For Roth IRAs, the RMD is not required until the Roth IRA owner’s death.
4. Adjustments for Beneficiaries Who Are Not Spouses: If the successor beneficiary is not the surviving spouse, the RMD must be calculated using the life expectancy of the deceased IRA owner, not the beneficiary. This means that the RMD will be higher for non-spouse beneficiaries.
5. Consider Consequences of Not Taking RMD: If the successor beneficiary fails to take the required RMD, they may be subject to a 50% penalty on the amount that should have been withdrawn. It is crucial to be aware of this penalty and take the RMD on time.
Conclusion
Calculating RMD for successor inherited IRA can be a complex task, but it is essential for maintaining compliance with tax regulations. By following this step-by-step guide, successor beneficiaries can ensure they are taking the correct amount of RMD and avoiding potential penalties. It is always recommended to consult with a financial advisor or tax professional for personalized guidance on handling inherited IRAs.
