Traditional IRAs allow the owner several tax advantages: it allows for an upfront tax deduction as well as tax-deferred growth. Upon withdrawal of funds, the account owner is taxed at ordinary income rates. Inherited IRAs require the new account owner to begin taking withdrawals over their lifetime regardless whether or not they need the funds. Why? Because Uncle Sam wants to collect his share. Here are some potential strategies for delaying RMDs from Traditional IRAs as long as possible.
Are you the beneficiary of a Traditional IRA from someone other than your spouse?
If you inherited a Traditional IRA from a spouse, you are likely able to delay taking RMDs until you reach 70.5 years of age. Check out our “Should I Inherit my Deceased Spouse’s IRA?” flowchart. If you inherited the IRA from a non-spouse, move on to the next question.
Did the person pass away before their Required Beginning Date (April 1st, the year after turning 70.5)?
They have reached their Required Beginning Date
This allows you two options: electing the “5 Year Distribution Rule” or taking RMDs based on your life expectancy using the IRS Single Life Expectancy Table. The “5 Year Distribution Rule” means all assets must be out of the account at the end of 5 years. You could withdraw all funds immediately, spread them out over the 5 years, or take them all out just before the end of 5 years. Keep in mind you will need to pay ordinary income tax on the whole amount distributed.
If you take RMDs based on your life expectancy it will spread out the tax burden.
They have not reached their Required Beginning Date
You will be required to open an Inherited IRA and take RMDs based on your life expectancy according to the IRS Single Life Expectancy Table. Depending if the deceased had satisfied their RMD for the year of their death, you may be required to take one this year.
If you’ve made it this far, you may be able to delay the RMD from your inherited IRA. Check out this flowchart to learn more.
If you would like to schedule a call to talk about the best strategy for delaying RMDs from Inherited IRAs, give us a call at 303-440-2906 or click here to schedule a time to speak with us.
Robert J. Pyle, CFP®, CFA is president of Diversified Asset Management, Inc. (DAMI). DAMI is licensed as an investment adviser with the State of Colorado Division of Securities, and its investment advisory representatives are licensed by the State of Colorado. DAMI will only transact business in other states to the extent DAMI has made the requisite notice filings or obtained the necessary licensing in such state. No follow up or individualized responses to persons in other jurisdictions that involve either rendering or attempting to render personalized investment advice for compensation will be made absent compliance with applicable legal requirements, or an applicable exemption or exclusion. It does not constitute investment or tax advice. To contact Robert, call 303-440-2906 or e-mail firstname.lastname@example.org.
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