Chris Robinson, ChFC
Understanding Successor Beneficiaries
What is a Successor Beneficiary?
A successor beneficiary is someone who inherits an Individual Retirement Account (IRA) that was already inherited by another person. This situation can be complex and has unique rules that must be followed. For example, if you recently inherited an IRA from your 80-year-old Uncle Joe, and this IRA was originally inherited by Uncle Joe from his mother, you are considered a successor beneficiary.
Rules for Successor Beneficiaries
As a successor beneficiary, you are subject to specific regulations. Since Uncle Joe passed away after 2020, the rules established by the SECURE Act apply to you.
Rules and considerations:
• You must clear out the IRA within 10 years.
• You are required to take Required Minimum Distributions (RMDs) for the first nine years based on the original beneficiary’s life expectancy which, in this case, is Uncle Joe’s life expectancy.
The IRS has waived these RMDs for the years 2021 through 2024.
• Don’t forget to add your own beneficiary to this IRA.
Qualified Charitable Distributions (QCD) from an Inherited IRA
Can I do a QCD from an inherited IRA?
Yes, you can make a Qualified Charitable Distribution (QCD) from an IRA or an inherited IRA if you are 70.5 years of age or older. Here are some important points to consider:
• The annual limit for QCDs is $105,000 for each person and must be from their own IRAs.
• A QCD counts toward your Required Minimum Distribution (RMD) for the year.
• When reporting a QCD, you or your CPA must properly document it on your tax return, since Form 1099-R from the IRA custodian does not differentiate between QCDs and other distributions.
RMDs and Retirement
Do I have to take an RMD from my 401(k) the year I retire before I roll over to an IRA?
If you retire in the year you turn 73 or later and wish to roll over your 401(k) to an IRA, you must take a Required Minimum Distribution (RMD) before the rollover. Here’s what you need to know:
• You must take your RMD first, then the remaining funds can be rolled over to an IRA.
• If you choose to delay your rollover until the following year, you can avoid taking an RMD at age 73. However, you will be required to take two RMDs the next year at age 74 before rolling over the remainder to an IRA.
• Rolling over the RMD portion from a 401(k) to your IRA is considered an excess IRA contribution and should be avoided.
Need Help?
Understanding the intricacies of IRAs, RMDs, and QCDs can be challenging. If you have questions or need guidance on managing your retirement accounts, contact Chris Robinson, ChFC, at RFG Wealth Advisory.
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