Any Accountants here that can help me?

[lukenick1]

I inherited a Traditional IRA from a family member. The Family member died January 2020 at the age of 55. I am 8 years younger than her. I had the IRA moved into a Beneficiary IRA in my name. I received a letter about RMD's and the Secure ACT IRS rules. I am so confused about this rule. Am I required to take RMD's yearly if she was only 55 years old when she passed? Am I considered an "eligible designated beneficiary" because I am only 8 years younger than her? Who determines how long I can leave the money into this account? So my questions are..
1. Am I required to take RMD's?
2. Do I follow the 10 year rule or the lifetime rule due to our age difference?
3. If I am required to take RMD's how do I know how much I am required to take yearly?

My CPA can't answer these questions for me they tell me to call the financial advisor and the FA tells me to call the CPA. So frustrating!

 

[AmyMac1109]

I inherited a Traditional IRA from a family member. The Family member died January 2020 at the age of 55. I am 8 years younger than her. I had the IRA moved into a Beneficiary IRA in my name. I received a letter about RMD's and the Secure ACT IRS rules. I am so confused about this rule. Am I required to take RMD's yearly if she was only 55 years old when she passed? Am I considered an "eligible designated beneficiary" because I am only 8 years younger than her? Who determines how long I can leave the money into this account? So my questions are..
1. Am I required to take RMD's?
2. Do I follow the 10 year rule or the lifetime rule due to our age difference?
3. If I am required to take RMD's how do I know how much I am required to take yearly?

My CPA can't answer these questions for me they tell me to call the financial advisor and the FA tells me to call the CPA. So frustrating!

If you are less than 10 years younger than her, you're an Eligible Designated Beneficiary. Since she was under 72 at time of death, you can choose 1) Lump Sum cash out, 2) Life Expectancy Method (and RMD must start by Dec 31 of year after death), or 3) 10 year method (full distribution by Dec 31 of 10th year after death). If you had not been an Eligible Designated Beneficiary, you'd have to use the 10 year method.

Sounds like, if you did not take RMD by Dec 31, 2021, then you chose the 10 year method. If you didn't mean to choose this, you need to take 2021 RMD immediately (and don't forget to take 2022 RMD in a separate transaction). File form 5329 with your tax return which will report a 50% additional tax on the late 2021 RMD, but don't pay it- attach a letter explaining why you didn't take RMD timely (i.e., you didn't know you had to, you have since taken it, and you will not mess up again in the future). Hopefully they waive it and you won't owe the tax. If not, you'll get a bill for the tax plus interest.

I think you have to calcluate RMD yourself since this is not an employer sponsored plan. Try here to help.

Source: I'm a tax attorney. But not YOUR tax attorney. So, take my knowledge above as a starting off point to do some research on your own.

 

[lukenick1]

If you are less than 10 years younger than her, you're an Eligible Designated Beneficiary. Since she was under 72 at time of death, you can choose 1) Lump Sum cash out, 2) Life Expectancy Method (and RMD must start by Dec 31 of year after death), or 3) 10 year method (full distribution by Dec 31 of 10th year after death). If you had not been an Eligible Designated Beneficiary, you'd have to use the 10 year method.

Sounds like, if you did not take RMD by Dec 31, 2021, then you chose the 10 year method. If you didn't mean to choose this, you need to take 2021 RMD immediately (and don't forget to take 2022 RMD in a separate transaction). File form 5329 with your tax return which will report a 50% additional tax on the late 2021 RMD, but don't pay it- attach a letter explaining why you didn't take RMD timely (i.e., you didn't know you had to, you have since taken it, and you will not mess up again in the future). Hopefully they waive it and you won't owe the tax. If not, you'll get a bill for the tax plus interest.

I think you have to calcluate RMD yourself since this is not an employer sponsored plan. Try here to help.

Source: I'm a tax attorney. But not YOUR tax attorney. So, take my knowledge above as a starting off point to do some research on your own.

Ok thank you.....the letter says that the IRS will waive the 50% excise tax for the 2021 and 2022 tax year. Also, I did not move the money from her account until December of 2021, she died in 2020 because I didn't know what to do. So if the beneficiary IRA was just opened december of 2021 what do I do?

 

[lukenick1]

If it is now the 10 year method are RMD's required?

 

[AmyMac1109]

Ok thank you.....the letter says that the IRS will waive the 50% excise tax for the 2021 and 2022 tax year. Also, I did not move the money from her account until December of 2021, she died in 2020 because I didn't know what to do. So if the beneficiary IRA was just opened december of 2021 what do I do?

RMD starts the calendar year after death; it does not matter that you did not have the account open until Dec of that year. So, if you are choosing life expectancy method, you need to take RMD for both 2021 and 2022 (make separate requests of the custodian so it appears as two separate transactions, even though they will both be reported on your 2022 income tax return). If IRS will waive 50% tax, that's great. But check with your CPA about whether you still need to file the form to request the waiver or if it is automatic.

If it is now the 10 year method are RMD's required?

Sounds like IRS is allowing people to make late decisions (since they are waiving 50% tax for 2021 and 2022). So, if you didn't mean to chose 10 year method, you can still choose Life Expectancy method. BUT, if you do want to choose 10 year method, then no, RMD is not required. But you MUST liquidiate the account by Dec 31 in the 10th year after death (i.e., Dec 31, 2030). If you don't take any distributions (RMD or otherwise) over those 10 years, then you'll have to take it all at once in that 10th year.

 

[lukenick1]

RMD starts the calendar year after death; it does not matter that you did not have the account open until Dec of that year. So, if you are choosing life expectancy method, you need to take RMD for both 2021 and 2022 (make separate requests of the custodian so it appears as two separate transactions, even though they will both be reported on your 2022 income tax return). If IRS will waive 50% tax, that's great. But check with your CPA about whether you still need to file the form to request the waiver or if it is automatic.


Sounds like IRS is allowing people to make late decisions (since they are waiving 50% tax for 2021 and 2022). So, if you didn't mean to chose 10 year method, you can still choose Life Expectancy method. BUT, if you do want to choose 10 year method, then no, RMD is not required. But you MUST liquidiate the account by Dec 31 in the 10th year after death (i.e., Dec 31, 2031). If you don't take any distributions (RMD or otherwise) over those 10 years, then you'll have to take it all at once in that 10th year.

OK thank you.......perfect I am fine with the 10 year rule so do I do nothing? Its not much money but I just didn't want to do something wrong. Next question is it is just sitting in a money market account. I have no idea if I should invest it or not...any advice? I have no idea about any of this.

 

[AmyMac1109]

OK thank you.......perfect I am fine with the 10 year rule so do I do nothing? Its not much money but I just didn't want to do something wrong. Next question is it is just sitting in a money market account. I have no idea if I should invest it or not...any advice? I have no idea about any of this.

Yeah, pretty much do nothing. Occassionally check the balance and make sure it's liquidated within 10 years.

Presumably you can control the investments. I'd reach out to the financial advisor to discuss. They probably have some portfolios with various investments that will keep everything balanced and diversified. If you do nothing, then yes, it's probably sitting in what is essentially a money market account, which is not necessarily a bad thing (you won't lose anything, but you won't really gain much either). But, if it's not life changing money and you don't "need" it, then I would invest it more aggressively. Just my two cents.

 

[lukenick1]

Yeah, pretty much do nothing. Occassionally check the balance and make sure it's liquidated within 10 years.

Presumably you can control the investments. I'd reach out to the financial advisor to discuss. They probably have some portfolios with various investments that will keep everything balanced and diversified. If you do nothing, then yes, it's probably sitting in what is essentially a money market account, which is not necessarily a bad thing (you won't lose anything, but you won't really gain much either). But, if it's not life changing money and you don't "need" it, then I would invest it more aggressively. Just my two cents.

I know nothing about investing.....i really don't need it right now. Whats the best option to not lose? FA mentioned American Balance FUnd, Franklin DYnatech, or Mutual funds. I guess I need to do some research.....

 

[DLgal]

OK thank you.......perfect I am fine with the 10 year rule so do I do nothing? Its not much money but I just didn't want to do something wrong. Next question is it is just sitting in a money market account. I have no idea if I should invest it or not...any advice? I have no idea about any of this.

How much is the money market paying?

Does a full withdrawal count as income for tax purposes (I honestly don't know the rule on this for inherited IRAs). If not, and the money market is paying less than 3%, move the money to a high yield savings account, at least. If you don't need the money soon, now's a great time to put it in a total stock market index fund and let it ride. Something like Vanguards VTSAX Admiral Shares.

 

[lukenick1]

How much is the money market paying?

Does a full withdrawal count as income for tax purposes (I honestly don't know the rule on this for inherited IRAs). If not, and the money market is paying less than 3%, move the money to a high yield savings account, at least. If you don't need the money soon, now's a great time to put it in a total stock market index fund and let it ride.

Hi....yes a full withdrawel does count as income. I really have no idea how much interest it's getting or how to even check. See how uneducated I am about this

 

[DLgal]

Hi....yes a full withdrawel does count as income. I really have no idea how much interest it's getting or how to even check. See how uneducated I am about this

Look up the performance of the fund it is in.

 

[lukenick1]

Look up the performance of the fund it is in.

NO clue how to do that

 

[AmyMac1109]

I know nothing about investing.....i really don't need it right now. Whats the best option to not lose? FA mentioned American Balance FUnd, Franklin DYnatech, or Mutual funds. I guess I need to do some research.....

Sorry, I'm of no help on that front.

 

[lukenick1]

How much is the money market paying?

Does a full withdrawal count as income for tax purposes (I honestly don't know the rule on this for inherited IRAs). If not, and the money market is paying less than 3%, move the money to a high yield savings account, at least. If you don't need the money soon, now's a great time to put it in a total stock market index fund and let it ride. Something like Vanguards VTSAX Admiral Shares.

Which HYSA do you refer to? I have been looking into those

 

[AmyMac1109]

NO clue how to do that

Reach out to your financial advisor. They should be able to provide the info on the current investment.

 

[lukenick1]

Reach out to your financial advisor. They should be able to provide the info on the current investment.

THanks

 

[lukenick1]

Also for inherited money, is it always best to pay down a home mortgage? Or put it into a HYSA?

 

[DLgal]

Which HYSA do you refer to? I have been looking into those

I use Ally. They pay 2.75% and raise it frequently as the fed raises interest rates. It's automatic.

 

[DLgal]

Also for inherited money, is it always best to pay down a home mortgage? Or put it into a HYSA?

Right now, HYSA is paying more than many mortgage interest rates.

 

[lukenick1]

Right now, HYSA is paying more than many mortgage interest rates.

Do you mean I could make more money putting it into an HYSA than I would save paying down the mortgage?