How to Determine the Required Distribution Amount of an Inherited IRA
The rules on required minimum distributions from an Individual Retirement Account (IRA) are somewhat complex and difficult to understand. It becomes even more confusing when you are not the owner of the account, but the beneficiary, who inherits the account upon the death of the owner. Depending on your relationship with the owner, the rules differ among beneficiaries.
Other People Are Reading
Things You'll Need
- IRA minimum distribution tables
- Account statement with balance
- Calculator
Instructions
-
Minimum Distribution Amounts
-
1
Determine whether you wish to take a lump-sum distribution in the next five years. Remember that any amounts you withdraw from the account are taxable in the year the distribution is made, possibly pushing you into a higher tax bracket. If you decide to take a lump-sum distribution within the next five years, no minimum distributions are required in the preceding years.
-
2
Roll over the IRA and treat it as your own if you are the surviving spouse and the sole beneficiary of the IRA. By choosing this option, you do not have to begin receiving distributions until you reach age 70 1/2, a decision you can base on your own life expectancy. For example, if your spouse dies when you are 65 and leaves you $100,000, you can roll over the account into your own IRA. At the age of 70 1/2, you must take out a required minimum distribution of $3,650. Determine this amount by looking at the corresponding life expectancy value for age 70.
-
-
3
Take minimum distributions using the single life expectancy table and your own age, or the owner's life expectancy minus one, whichever is longer, if the owner already began taking required minimum distributions. For example, if you are 40 years old and inherit an IRA with a balance of $150,000 from your father, who was taking required minimum distributions when he passed, your required minimum distribution in the first year is $3,440.
-
4
Use the single life expectancy chart and your age to determine the distribution amount if the owner was not taking required minimum distributions before his death.
-
5
Use the Joint Life and Last Survivor Expectancy table if you are a surviving spouse who is more than 10 years younger than your husband or wife. Locate the number in the horizontal column that corresponds to your age and your spouse's age in the vertical column. For example, if you are 45 and your spouse was 65 at the time of his death, your life expectancy is 39.9 years.
-
1
Tips & Warnings
Lifetime expectancy tables generally do not change from year to year, but check them anyway.
Roth IRA accounts do not have required minimum distribution rules because the owner can withdraw funds whenever he chooses to.
It is always good to check with the custodial institution or a financial professional to ensure you are taking out the appropriate amount. The IRS imposes up to a 50 percent excise tax on the amount that is not distributed as required.
Required minimum distributions must be taken by December 31 of the tax year. You can take them in periodic payments or as a lump sum.
