Navigating Inherited IRA Rules: Expert Strategies for Minimizing Next Year’s IRS Tax Bill

Under the new restrictions, there may be complicated tax rules for persons who inherit an IRA.

The Secure Act of 2019 gives heirs two options: they can either start a new account in an IRA or an approved employment plan, or they can withdraw the money in one single sum and pay taxes on it. (Photo: LSL CPAs)

Receive an IRA from a Decedent

Based on a report from Washington Examiner, nonspouse beneficiaries (also known as noneligible designated beneficiaries) who receive an IRA from a decedent after January 1, 2020, must empty the account within 10 years. Eligible designated beneficiaries, often known as individuals who passed away before 2020 or their spouses, are exempt from the modifications.

According to the Secure Act of 2019, heirs have two options: they either withdraw the money in one lump payment and pay taxes on it or they can open a new account in an IRA or eligible employment plan.

A necessary minimum distribution must be taken by heirs the year following the death of the IRA owner.

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RMDs from inherited IRAs were not necessary

Due to a brief suspension in 2021 and 2022, RMDs from inherited IRAs were not necessary, but they were anticipated to begin this year. However, the IRS postponed making its final decision on the modified minimum distributions for inherited IRAs until 2024. In 2023, late payments on inherited IRAs will result in a 25% excess accumulation penalty tax.

An article from Washington Examiner, RMDs may be uploaded up to the year in which the deceased original owner would have become 73 years old or through December 31 of the year after the death.

The IRS plans to complete the latest revisions by 2024 after initially releasing suggested guidance in 2022.

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