In this Episode of the Secure Your Retirement Podcast, Radon and Murs discuss the complexities of Inherited IRAs with special guest Taylor Wolverton, a Certified Financial Planner and Enrolled Agent. They break down what beneficiaries need to know about inherited retirement accounts, including crucial updates introduced under the Secure Act. Whether you’re a spouse, non-spouse, or special exception beneficiary, this episode helps you understand how to navigate the rules and avoid costly mistakes when it comes to inherited IRA distributions.

Listen in to learn about the different rules based on whether the account was inherited before or after 2020, how the 10-year rule inherited IRA provision works, and how it contrasts with the old Stretch IRA rules. They also explain IRA beneficiary rules for both Roth inherited IRA and traditional IRAs, helping you determine the most tax-efficient strategy for your situation. With insights on Inherited IRA RMD rules, Secure Act IRA changes, and options for non-spouse IRA beneficiaries, this is a must-listen episode for anyone dealing with an IRA inheritance.

In this episode, find out:

• What the 10-year rule inherited IRA really means for beneficiaries.
• How IRA rules for beneficiaries differ for pre- and post-2020 inheritances.
• The difference between spousal vs non-spouse IRA beneficiary strategies.
• How to handle Inherited IRA RMD rules and avoid tax penalties.
• Why Roth inherited IRA strategies may involve waiting until year 10.

Tweetable Quotes:

“Just because you’re not required to take a distribution every year doesn’t mean it’s the best strategy for your taxes.” – Murs Tariq

“Understanding whether you’re a spouse or non-spouse IRA beneficiary changes everything about how you manage the account.” – Taylor Wolverton

Resources:

If you are in or nearing retirement and you want to gain clarity on what questions you should be asking, learn what the biggest retirement myths are, and identify what you can do to achieve peace of mind for your retirement, get started today by requesting our complimentary video course, Four Steps to Secure Your Retirement!

To access the course, simply visit POMWealth.net/podcast.

Here’s the full transcript:

Welcome everyone to the Secure Your Retirement podcast. We’re excited that you’re 

tuning in. We’ve got a great episode all around this concept of inherited IRA, 

and the RMDs that we have to take on them, and there’s a lot of nuances to it. 

There’s a lot of different rules. So, for that reason, we have brought in our very 

own Taylor Wolverton, who is a certified financial planner, as well as an EA, 

which is very similar to a CPA, so very well versed on tax. So, you take her 

financial planning brain and her tax strategy and put that together, and we can 

really talk through some cool things and come up with some great strategies. So 

Taylor, thanks for hopping on with us today. – Yeah, you’re welcome. – So, like I 

said, the concept of this episode today is really to inform people about inherited 

IRAs and what we have to do to make sure we’re following the IRS’s rules. And the 

big part of that is these required minimum distribution. So, while you are living and 

you reach a certain age in your own IRA, typically that’s 73 or age 75, 

you have what’s called a required minimum distribution. We’ve done episodes on that 

before, so if you want to learn more about your own required minimum distribution 

for your own IRA, check out that episode. So today is more focused on inherited IRA 

RMDs. When you inherit it, you either inherited it from a spouse or a non -spouse 

and both of those have different rules. And then to throw another wrench into it, 

there were rule changes that happened in 2020. So, if it was prior to 2020 that you 

inherited the IRA, there’s one set of rules. If you inherited the IRA after 2020, 

there’s another set of rules. So clearly, it’s going to be a very fun episode and I’m 

glad Taylor’s here to kind of walk us through. So, Taylor, let’s dive in on, let’s 

start with what we would call the old rule, which is prior to 2020, if you 

inherited an IRA, and let’s say for this one, a non -spouse. So, if you’re 

listening, think you may be inherited an IRA from a sibling, or you inherited an IRA 

from a friend or a family member, but a non -spouse, you are a non -spouse 

beneficiary. What do we need to think about there, Taylor? – Yeah, so the rules, if 

you were the non -spouse beneficiary of an IRA prior to 2020, 

so, this is 2019 or earlier, the Secure Act is what changed these rules. So before 

the rules changed, we referred to the way that inherited IRA distributions worked as 

like a stretch IRA and that’s because the factors that determine your distribution 

was the account balance the prior year and then also your life expectancy as the 

beneficiary based on the IRS’s table that they publish it’s called the single life 

expectancy table and so you could use your own life expectancy as the beneficiary, 

it updates every single year as you go along and have that account, and it 

basically, stretches out the distributions over your entire lifetime. So, if you 

inherited an IRA from someone who was older than you, then it’s based on your life 

expectancy, and now those distributions get stretched out over your life expectancy. 

So, you have a longer amount of time than even the account the original account 

owner would have to take those distributions. But like we said, 

the Secure Act in 2019 changed those rules, eliminated the stretch IRA provision. 

So now we have to accelerate our distributions, which is kind of what we’re going 

to get into in this episode now. Yeah. So, and that’s a nice overview of the, 

the old stretch IRA so when that went away in 2020, we had to adapt and by the 

way if you’re listening you know and you’re taking RMDs on your own IRA well 

the custodians and when I say custodians you can think of Charles Schwab or Fidelity 

or Vanguard they have a responsibility to calculate what your own RMD is and they 

report that to the IRS they also report it to you to make sure that you take what 

you’re supposed to take out on your own IRA. With inherited IRAs though, because 

there are so many nuances in the rules, they don’t calculate that for you, and they do 

not remind you that you need to take it. So, I think it’s very important as we’re 

kind of understanding these rules and very likely getting a little bit confused on 

it, that it is important to work with someone That can help you stay on top of 

your inherited IRAs as well as strategize around them as far as the distribution 

goes and how it’s going to affect your financial plan and your tax plan as well. 

So, I just wanted to throw that in there as you listen through this. And if you 

have an inherited IRA and you need guidance; we’re always here for that. So, Taylor, 

let’s talk about same category non -spouse beneficiaries that inherited their IRA in 

January of 2020 or later. What does that look like now? – Yes, so, 

and actually, too with the Secure Act, the reason why we’re having this conversation 

now is even though these laws were announced in 2020, there’s been so much kind of 

murkiness around the rules that the IRS has actually waived these requirements every 

single year until five now. So, this is the first year that these rules actually 

apply and are actually being enforced by the IRS because now they’ve clarified 

exactly what we need to do to follow those rules and avoid penalties. So, if you 

are a non -spouse beneficiary, so again, if you’re like the sibling of the original 

account owner or the son, daughter, child, friend, neighbor, whatever it happens to 

be, there are kind of two rules that we look at. The first one is the required 

minimum distribution, the RMD. There’s potentially an RMD for your inherited IRA. 

The second rule that will apply, I should say, is also the 10 -year rule. 

So, like I said, the stretch IRA provision was 2019 and prior, spreading it out over 

your entire lifetime, but now the IRS has asked us to accelerate those distributions 

by enforcing the 10 -year rule. So, first kind of one that we’re looking at the RMD 

applies if the original account owner was taking RMDs themselves. 

So, if the person that you inherited the account from was 73 or older, they were 

taking required minimum distributions themselves, they passed away. You inherited the 

account, because the original owner was taking RMBs, you now as the beneficiary have 

to also continue those RMBs. Regardless of your age as the beneficiary, 

you have to continue the RMBs. And also, the 10 -year rule applies as well, 

meaning you have to distribute the entire account balance by the 10th year after the 

original owner passes away. So, we’re going to talk about a couple of examples to 

show when certain rules apply and what that looks like and kind of on a timeline. 

So, let me say that back to make sure that we’re on the same page here, Taylor. 

So, let’s just assume that you inherited an IRA from a grandparent. And the 

grandparent, well, let’s just say they were 80, so they were already in required 

minimum distribution phase for themselves, they pass away, you inherit this account 

and because they were taking required minimums, you have to continue taking required 

minimums for them. There is a minimum amount that you have to take every year, but 

also, there’s this caveat that you have to take all of the account out by the end 

of the 10 years after you inherited it. So, in reality, when I think about that, 

the minimum is not a tenth of the account every single year, the minimum’s much 

less than that, so we need to be very strategic on how we’re going to clear out this 

account, and definitely we don’t want that to sneak up on us. – Exactly, yes. 

– Okay, so let’s go through some of the examples that you’ve got, and I’m sure I’ll 

have questions there too. – Yeah, okay, so the rule that changes is the required 

minimum distribution depending on the age that the original owner passed away. The 10 

-year rule always applies. So, first example, let’s say there’s a beneficiary who 

inherited an IRA. They’re 60 years old and they inherited it from their sibling who 

was 65 at the time that they passed away. So, the sibling who passed away, 

the original account owner was 65, that means they were not taking their own 

required minimum distributions if they’re younger than age 73, which in this example 

they are. So, there is no required minimum distribution for the inherited IRA owner 

now as you as the beneficiary do not have to take distributions, but the 10 -year 

rule does always apply regardless of the age of the original owner. So that means, 

let’s say, the sibling who was the original account owner passed away last year in 

2024. So now, as the beneficiary of the account, the beneficiary has 10 years to 

empty that account altogether. So, by December 31, 2034, 10 years after the original 

owner passed away, that account balance has to be zero. So, if they wanted to, 

they could wait until December 31st, 2024, distribute the entire account balance at 

that point in time. There are no penalties for not spreading it out over those 10 

years. But the more tax -efficient way to do that is to spread it out over those 

10 years rather than waiting until the final year where an entire distribution could 

push you into a higher tax bracket. So even if there’s not a requirement to take a 

distribution, it is so important to consider whether you want to take a distribution. 

Even if the IRS is not forcing you to, there is still strategy involved in emptying 

that account eventually. Right. And so, it requires kind of staying on top of it and 

again, not letting it sneak up on you. The only way I could think it would make 

sense to wait until the 10th year is if you are, in your example there, you’re 65 

in this and maybe you’re still working and maybe you make a high salary. So maybe 

you’re, what did you make 300 plus thousand a year and it’s a $100 ,000 IRA that 

you inherited. Well, then it could make sense to wait until you did retire your 

income drops and then you take significant distributions in those last couple of 

years of the 10-year rule. I think that’s a rarity, but it is one that could 

work, but I agree with you in most cases that makes sense to kind of spread it 

out and take advantage of lowering. 

beneficiary of this account again in 2024 is 60 years old. So now, 

because the original account owner was 87, they were taking RMDs, the beneficiary now 

as the owner of the 

continue those RMDs, though we’re going to get a little more specific around what 

that RMD is and how that gets calculated. 

So, one important piece of information to know is the prior year account balance and 

first let me say to in the year that the original owner passes away There’s not an 

RMD for the inherited for the beneficiary the owner of the inherited IRA in the 

year that the original owner passes away The RMD is based on their lifetime. So 

it’s only the next year after their original owner passes away that the inherited 

IRA RMD is enforced. So, in this example, 

I’d say their original owner passes away in 2024. So now we’re in 2025. So the 

first thing we need to know is the account balance the year prior. On December 

31st of 2024, I’m just going to say in this example, the account balance was $50 

,000. The other important factor to look at is now your life expectancy figure from 

the IRS table. They call it the single life expectancy table. You base it on your 

age as the beneficiary. So, in 2025, let’s say the beneficiary was age 61. 

So, if you go and look at the IRS single life expectancy table for age 61, you’ll 

see the life expectancy factor is 26 .2. So, 

to figure out the required minimum distribution for 2025, we’re going to take the 

$50 ,000 account balance, divide it by the life expectancy factor 26 .2, 

and we’ll get the required minimum distribution for 2025 of around $1 ,908. 

So that’s the minimum amount that has to come out of that account in 2025. But 

again, the 10 -year rule also still applies, that account balance has to be zero by 

December 31st of 2034. So again, it might make sense to strategize, 

come up with a plan, look at your income for the next 10 years and figure out if 

it’s worth taking more than the required minimum distribution or maybe you’re in a 

situation where it doesn’t make sense. But either way, you want to know what those 

rules are, what your R &D is, what your plan is, what the strategy is going to be 

moving forward. And next year, I’ll say two, for going forward, 

you still have the requirement of distribution every single year. But now you take 

the life expectancy factor and you subtract one for every single year going forward. 

So, the year starting the life expectancy factor in our example is 26 .2. 

For next year, you’re going to subtract one and divide the account balance by 25 .2. 

And then the year after 24 .2. So, you go back to the original age on the life 

expectancy table for every single year of the calculation going forward. Got you. So 

it’s a moving number is what I’m hearing year over year on the minimum calculation. 

Now it just simple and easy math here. Let’s just say that every year our required 

minimum is $2 ,000 a year and we’ve got a $50 ,000 account, 

but if we’re only taking the 2 ,000 a year for the 10 years That’s 2 ,000 times 

10. That’s 20 ,000. That’s been taken out We have to clean it out by year 10. And 

so, there’s 30 ,000 left plus market growth So let’s just say there’s you know back 

to somewhere in the realm of 50 ,000 because it continued to grow Now, we’ve got a 

big distribution that we got to take by on that year 10. So that’s why, um, you 

know, just sticking to the minimum may, may work for a little bit, but it could 

come back to bite you if we don’t stay on top of it. Yes. Okay. So, what are some 

exceptions to this 10-year rule? Um, and you know, 

how, how’s all that work if we can still stretch it? Yeah. There are some 

exceptions to where they can actually default back to the prior to secure act rules 

with a stretch IRA. And that’s for the surviving spouse, or if you’re as the 

beneficiary disabled or chronically ill, or minor children of the original account 

owner, or if you’re the beneficiary less than 10 years younger than the original 

account owner. So, I And with art, in my experience, those exceptions are also 

pretty rare, but they do exist. So, it is important to note. Yeah. I think I’ve 

seen one or two that fit the bill for the exception, but in most cases, you’re 

going to the 10 -year rule. I mean, obviously the surviving spouse is probably the 

most common exception. And that’s, you know, if my wife was to pass away, 

I would inherit her IRA; that’s an exception to the 10 -year rule. So, let’s talk 

about that, Taylor. Let’s talk about spousal beneficiaries that inherited in 2020 and 

onwards. How does that work? Yes. Yeah. So, spouses have a little bit of different 

rules that they’re allowed to follow, according to the IRS. So, one option that is 

available to surviving spouses is to take that inherited IRA account balance and roll 

it over into their own traditional IRA balance. What that does is allow you as the 

surviving spouse to delay any RMDs until your own RMD age. 

So, if I’m a spouse, I’m, let’s just say I’m 60 years old, my spouse passes There, 

my spouse has a traditional IRA. I choose to take that option, rule my deceased 

spouse’s IRA into my own account. And now I can delay my RMDs until I’m 73 or 75, 

depending on your own RMD requirement for your age. So that allows you to delay 

your RMDs rather than taking it when your spouse would have, according to their own 

age. So that option makes sense, especially when you are the younger of your self 

and your spouse to give you more time before you’re forced to take those 

distributions. Yeah. And just in experience, I would say 90 % of the time, 

we’re using that option, which is just to combine the seed and IRA with the as 

IRA, just dump them together, and then now you’re under your own IRA rules, which 

is the RMD later on in life. So that one makes it simple, it makes it easy, but 

there are sometimes where we want to do something different, which is, as a 

spouse, take it as an inherited IRA and not combine it with my own IRA. 

Why would we ever choose that option? Yeah, that’s the other option, you can 

maintain the account as an inherited IRA. For one, if you are the older spouse, 

that can be a better move because then the RMDs will be based on the decedent, 

their original owner spouse, their age. So, then I can give you as the surviving 

spouse a little more time to delay rather than having to start at your own RMD 

age, which would come sooner than your younger spouse. So, if you’re older, the older 

of the spouses, it can make sense to go the inherited IRA route. And also, 

if you are under the age of 59 and a half, it can make sense to make the account 

into an inherited IRA because you can take distributions. Even if you’re under 59 

and a half, you can take distributions from an inherited IRA without penalty, as 

close to if you roll that account into your own traditional IRA, you’re underage 

59 and a half, you cannot take distributions from your own traditional IRA when 

you’re under age 59 and a half without penalty. So, if you want more flexibility in 

having access to that money when you’re under 59 and a half, go the inherited IRA 

route. Yeah, so age is going to be very important on a spousal beneficiary 

election. So, this is all good and everything we’ve talked about so far has been 

IRA, traditional IRA, pre -tax IRA, which means we haven’t paid a dime of taxes on 

it yet. So, it goes without saying that when we’re taking these withdrawals it does 

become taxable income and you are going to receive a 1099 for whatever RMD or RMD plus 

additional that you decide to take is going to be taxable that year. 

So that’s something we really need to think about as well in your tax strategy and 

tax plan. But Taylor, let’s take a minute and talk about Roth IRAs. A lot of 

people like the idea of a Roth, right? Roth conversions are a hot topic, funding 

Roth 401Ks and IRAs because of this idea of future tax -free money and paying 

the tax on that money now. So, it’s a great concept, but how do inherited Roths now 

play into this whole conversation? – Yeah, I wanted to touch on Roth IRAs 

specifically, because those rules are completely different. So, if you inherit a Roth 

IRA, there is never a required minimum distribution. Regardless of the age of the 

original account owner, you will not have an RMD as the beneficiary. However, 

the 10 -year rule does still apply. So again, 10 years, December 31st, 

10 years after the original owner passed away, that Roth IRA account balance must be 

$0. But the logic for planning those distributions out over those 10 years is 

different with the Roth IRA because unlike the traditional IRA, as if you leave your 

Roth IRA invested, it continues growing through the future, then that growth is also 

tax -free. So, what the Roth IRA can actually make sense to do the opposite and 

leave that account balance for all 10 years where possible, because then you’ll have 

a higher tax -free account balance in that 10th year and you can distribute it all 

without any tax or penalty consequences in that 10th year. So, a little bit different 

thought process with Roth IRAs because they are tax -free and have different benefits 

than the traditional IRA. Yeah, I mean, think about that from a legacy planning 

perspective. A lot of times when we have these conversations on Roth conversions, a 

lot of times we’re doing conversions not necessarily for us, but we’re doing it for 

our legacy and our inheritance so that they inherit money out as much of a tax 

burden. So, if you think if we just put some simple numbers and easy numbers to it, 

let’s say you leave behind $100 ,000 Roth IRA, someone inherits it. 

And like Taylor said, there is no requirement of distribution. It still needs to be 

cleared out by the year 10. But there’s no minimum that we have to take along the 

way with the traditional IRA. We very likely don’t want to wait till year 10, 

but excuse me, sorry, with the Roth IRA, we want to try to wait till year 10 as 

much as possible, because take that 100 ,000 and it grows at a decent rate of 

return in that 7 % -ish type of range over 10 years, that number is going to 

double. So, 100 ,000 now becomes 200 ,000. And if we’re able to wait 10 years, now 

we’ve got a bigger asset, which we can withdraw fully, completely tax -free. So, I 

think that’s a pretty cool strategy to think about, which means we’ve got to educate 

our beneficiaries a little bit or make sure that they’re working with the 

professional as well. So, Taylor, this has been very insightful and very helpful. 

Inherited IRAs are a little bit confusing, which again, I stress the reason to be 

working with someone that understands them that can help you, kind of holistically 

look at the best way to inherit and then make those distributions along the way. So 

Taylor, thanks a lot for your time today. I’m sure everyone’s going to love this 

episode. Yeah, you’re welcome. That was fun.