The Internal Revenue Service requires owners of Individual Retirement Accounts to withdraw a part of their tax-deferred savings every month. However, this rule doesn’t apply to everyone. It only applies only to those that are over the age of 72 (or 70 and a half if attained before 2020). This withdrawal requirement is known as the Required Minimum Distribution. It prevents people from benefitting more than needed as they can take advantage of the tax benefits forever.
In short, if you have a traditional, rollover, inherited, SIMPLE IRA, or SEP, you will have to take out a portion of your savings every month. As the Roth IRA doesn’t grant any tax benefits, there is no RMD amount. It’s up to you to withdraw any amount, any month of the year if you have Roth IRA.
The required minimum distribution is generally subject to a 10-year rule. What this rule is that the Internal Revenue Service requires the beneficiary to liquidate the funds within ten years after the beneficiary is eligible to receive the refunds. In other words, when the IRA owner dies.
Calculate Inherited RMD
The inherited RMD is different for everyone, depending on several factors such as IRA type, IRA owner’s date of birth and death, who the beneficiary is, beneficiary’s date of birth, and the IRA balance. Take these into account when calculating the inherited IRA RMD.
Take note that these are a little different than mandatory inherited 401k withdrawals.
Exceptions for Required Minimum Distribution
As mentioned, the designated beneficiary is generally required to liquidate the assets within ten years after the IRA owner dies but, there are exceptions for this, depending on who’s the beneficiary. In the 10-year period, the beneficiary must take distributions of any amount regardless of the time. But, if you’re one of the following individuals, you’re exempt from the 10-year rule.
- The spouse of the IRA owner
- The minor child of the IRA owner
- Someone who’s disabled for tax purposes
- Someone who’s chronically ill for tax purposes
- Someone who’s not more than ten years younger than the IRA owner.
Note: The minor child of the IRA owner is subject to the 10-year rule upon reaching the age of 18. After reaching 18, the child of the IRA owner must follow the 10-year rules.