Inherited IRA RMD Calculator

When a person owning an individual retirement account (IRA) or a qualified retirement plan (QRP) passes away, the IRA or QRP assets transfer to the primary beneficiary(ies) listed on the account. If the primary beneficiary(ies) are deceased or disclaim the account assets, then the account assets transfer to the contingent beneficiary(ies) named on the account.

An account transferred to a beneficiary is often called an “inherited” account.

A beneficiary must take withdrawal payments out of the account that they inherit within certain time frames. These withdrawal payments are called Required Minimum Distributions (RMDs). The beneficiary is responsible for certain decisions about how assets from the account are distributed. Withdrawals from inherited accounts are generally taxable to the beneficiary(ies) and must be included in their gross income. If you are the beneficiary of a Roth IRA, your withdrawals may not be taxable. You will receive an IRS Form 1099R after the end of the year, showing you the total amount you withdrew during the year.

An RMD is the amount of money and/or assets that must be taken out by the beneficiary each year by December 31. Distributions must be taken either for your lifetime or on a schedule that would deplete the account within a specified number of years since the original owner’s death. See “How do I know if I need to take a RMD?” for help determining if you need to take a RMD.

The IRS may impose a 50% penalty on the difference between the amount of the full RMD and the amount of the RMD that you’ve taken. You must withdraw the full RMD amount and include the taxable portion in your income. You may not roll it over to another IRA or QRP. You will receive a 1099R tax form after the end of the year showing the amount withdrawn.

Roth IRAs are exempt from the RMD requirements while the person who contributed to the Roth IRA is alive, but Roth Beneficiary accounts must take RMD’s regardless of the beneficiary’s age.

Whether you’ll need to take a beneficiary retirement account distribution depends on three (3) things:

1. The date of death of the original account owner: RMDs will differ based on whether or not the date of death is before April 1st of the year following the original account owner reaching age 72. 

2. Distribution Method: Depending on the date of death of the original account owner, the beneficiary(ies) has certain withdrawal options for their inherited account. The beneficiary's choice of distribution method will dictate whether or not an RMD is necessary.

3. Relationship to original account owner: If the beneficiary is the spouse of the original account owner, he or she will have additional options for taking their RMD. These are explained below and should be considered before making a decision on whether or not to take an RMD.

Based on how the IRS interpreted the 5 Year Rule, the 10 Year Rule would require that the entire Inherited IRA account be depleted no later than December 31 of the year containing the tenth (10^th) anniversary of the original IRA owner’s death. “Eligible designated beneficiaries” are able to take withdrawals at any time in any given amount (or even no withdrawals in a year), so long as they have depleted the account by the end of the 10^th year. 

However, the timing of the IRA owner’s death will impact the withdrawal requirements for beneficiaries who are not “eligible designated beneficiaries”:

• Where the original IRA owner passed away before they had reached their required beginning date (RBD) for their RMD’s, the beneficiaries are able to take withdrawals at any time in any given amount (or even no withdrawals in a year), so long as they have depleted the account by the end of the 10^th year. 
• Where the original IRA owner passed away in 2020 or later, AND after they had reached their required beginning date (RBD) for their RMD’s, new proposed regulations may require an annual RMD.  If the regulations are made “final” (put into effect) by the IRS, the beneficiaries must still deplete the Inherited IRA account by the end of the 10^th year, and must also take RMD’s each year. Since these are “proposed” regulations, but may be enacted, or changed at any time, please discuss whether you must make an annual withdrawal (RMD) with your tax advisor.

This applies to IRA accounts (including SEP and SIMPLE) where the owner died on January 1, 2020 or later.  For more information on what options are available to you, enter your information into the Inherited IRA beneficiary tool.

With the life expectancy payment option, a minimum amount must be withdrawn each year. To determine the minimum amount, the IRA balance is divided by the distribution period. Note: The life expectancy payment is the minimum amount that must be withdrawn; a beneficiary may always withdraw an additional amount including a lump-sum distribution.

A lump-sum distribution is a one-time distribution of the beneficiary's share of the IRA assets.

A Transfer to Own IRA describes the situation when a spouse is named as sole designated primary beneficiary (or when a financial organization will separately account the spouse beneficiary's share of the IRA assets) by December 31 of the year following the year of the IRA Owner's death. The spouse can then move the assets into a new or existing IRA in his or her own name through an IRA-to-IRA transfer. Alternatively, some financial organizations may allow a spouse, who is the sole designated beneficiary, to treat the inherited IRA as their own. This can be done by redesignating the IRA in the name of the surviving spouse rather than keeping it under the name of the original IRA Owner with the surviving spouse as a beneficiary.

An eligible designated beneficiary is defined by the IRS.  When named as a beneficiary, they may have the option to take life expectancy payments from the Inherited IRA, instead of having to follow the 10 Year Rule. They are:

• A spouse of the original IRA owner
• A chronically ill or disabled person
• Someone 10 years younger (or less) than the original IRA owner
• The child of the original IRA owner while that child is under age 21 only.

Any beneficiary who does not meet the criteria above is not an eligible designated beneficiary. 

For more information on what options are available to you, enter your information into the Inherited IRA beneficiary tool.