John and Sue were both 75 years old last year. They both took their RMDs for the year. John died early in December. Sue was his beneficiary. She rolled his IRA into her own IRA in January. The question was – “What is Sue’s RMD for this year?"
The different ways you inherit assets are just as varied as the assets themselves. Such is the case with an inherited IRA. When is it “yours” and how do you avoid tax issues?
The Slott Report recently addressed the consequences of when a surviving spouse inherits the IRA of their deceased spouse and both have reached age 70 ½, the age for Required Minimum Distributions (RMDs). The article titled “Inherited IRA: When do You Own It?” noted that one must be very careful.
For starters, the inheriting spouse must be the “designated” beneficiary. Assuming that is the case, what happens when your spouse dies in December and has not withdrawn the required RMD? Must you as the surviving spouse calculate your RMD on both account balances, your spouse’s and your own?
RMDs are always tricky because the penalties are steep, with a 50% penalty tax on the amount required but not taken.
Bottom line: be sure to get competent legal and tax advice before proceeding if you are the designated beneficiary of an inherited IRA.
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Reference: The Slott Report (May 6, 2013) “Inherited IRA: When do You Own It?”