The rules for inheriting IRA assets depend on your relationship to the original IRA owner and the type of IRA inherited. With the passage of the SECURE Act, IRA distributions to a nonspouse must be completed within 10 years following the death of the account owner.

Does the 10-year rule apply to inherited Roth IRA?

Most other beneficiaries are subject to the 10-year rule when inheriting IRAs, Roth IRAs and retirement accounts such as 401(k)s unless they are an “eligible designated beneficiary”. Eligible designated beneficiaries are: Beneficiaries of persons deceased before 2020.

What are the new rules for inherited IRAs?

There are two major changes under the new SECURE Act rules in 2020 and beyond: Unlike Roger (above), Inherited IRA account owners are not required to take Required Minimum Distributions. Inherited IRA account balances must be fully withdrawn within ten years of inheritance.

Can a beneficiary withdraw money from an inherited IRA?

Inherited IRA account balances must be fully withdrawn within ten years of inheritance. While a beneficiary isn’t required to continue RMDs, he/she can no longer stretch out distributions and control the tax obligations over their lifetime.

How does an inherited IRA affect your taxes?

Taxes: Your beneficiaries will be forced to take a lump-sum distribution during the tenth year. This can cause an income spike, push them into a higher tax bracket, and increase the chunk of cash the government will take. Tax Planning: Your beneficiaries can’t spread the tax obligation out over ten years or accelerate it in a low-income year.

What happens when an adult child inherits an IRA?

The tax benefits disappear forever once you distribute cash from an inherited IRA, with the distribution amount being characterized as taxable income. While the Stretch provision is gone for the majority of adult children, it is important to distribute this inherited IRA in the most tax-efficient manner, based on your individual circumstances.