By Elliot Raphaelson
Q: I recently inherited a traditional IRA from my deceased mother, who was 76 and had been taking RMDs each year. Based on everything I had read, I thought that I did not have to take any required distributions (RMDs) in years one through nine, but I would be required under the 10-year rule to liquidate the account in the 10th year. In a recent column you wrote that I would have to take RMDs during years one through nine based on life expectancy tables, because my mother had already been taking RMDs. Which information is correct?
A: When the SECURE Act passed, practically all the experts in the field believed, as you indicated, that individuals who inherited traditional IRAs were not required to take RMDs in years one through nine after the death of the IRA owner. However, the IRS issued interpretations this year that changed the previously held beliefs.
According to the IRS, if the owner of a traditional IRA had not reached his/her required beginning date (RBD) at the time of death, then the individual who inherited the IRA is not required to take RMDs in years one through nine but does have to liquidate the account by the end of the 10th year.
However, if the deceased owner had reached his/her RBD at the time of death, then an individual who inherited the account would be required to take RMDs in years one through nine, based on their single life expectancy, and then to liquidate the account by the end of the 10th year. The IRS has asked for comments regarding their interpretations, but it is not expected that the final regulations issued by the IRS will change from their latest interpretations.
Q: My husband is receiving a Social Security benefit. He has already reached his full retirement age. I am approaching age 62 and have not worked enough under Social Security to qualify for a benefit on my work record. If I apply for a spousal benefit at 62, I know that it will be discounted because I have not reached my full retirement age. But when I reach my full retirement age, will my spousal benefit be increased?
A: No. When you apply for a spousal benefit at age 62, it is permanently reduced. The same is true for those who apply before full retirement age for a benefit based on their work record. You can’t re-apply for a higher benefit at your full retirement age.
Q: I have had a Roth account for more than five years, and am older than 59 1/2, so I know that I can withdraw from the account without taxes or penalties. However, I am not pleased with the performance with my current financial institution. I do intend to convert some traditional IRAs to a Roth account in the future. If I transfer my account to another financial institution, will the five-year period for Roth conversions start again?
A: No. The five-year rule says you cannot withdraw funds tax-free from a Roth IRA account until five years after you began contributing to it. Once you meet the five-year requirement, you can transfer your account to another financial institution, and do an additional Roth conversion, without starting a new five-year holding period.
Q: My brothers and I (there are three) inherited a traditional IRA from my father last year. In the form filled out with the custodian of the account by my father, he did not spell out which IRAs went to which individuals. He only indicated the percentages of his IRAs that would go to each of us. Since we are different ages, how do we determine the RMDs that will be required. He was 80, and had been taking out RMDs each year.
A: You and your brothers should ask the custodian to split the IRAs based on the percentages your father indicated. Then, you and your brothers can take the required RMDs based on your age. If you don’t split the accounts into separate ones for each of you, then the required RMD will be based on the age of the oldest brother. By splitting the accounts, the younger brothers will be able to take out smaller RMDs each year. Splitting the account has to be done by December 31 of the year after the death of your father.
(Elliot Raphaelson welcomes your questions and comments at [email protected].)
©2022 Elliot Raphaelson. Distributed by Tribune Content Agency, LLC.
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