Inheriting an IRA or 401(k) can add to your wealth but it can also bring some potential tax headaches. One tricky issue involves required minimum distributions or RMDs. IRA and 401(k) plan owners are required to take minimum distributions from their accounts beginning in the year they turn 72. The IRS has special rules regarding the RMD in the year of death that IRA and 401(k) beneficiaries need to be aware of.
A financial advisor can help you through the ins and outs of planning for retirement to put your mind at ease.
When Do RMDs Begin?
Under the tax code, certain retirement account owners are required to begin taking minimum distributions once they turn 72. The types of accounts that are subject to RMDs include:
Roth IRAs are not subject to RMDs during the account owner’s lifetime. You will, however, be subject to RMDs if you inherit a Roth IRA. The IRS is very specific about when these distributions must begin. The required beginning date (RBD) for RMDs is April 1st of the year following the year that the account owner turns 72. That’s important for understanding when an RMD in the year of death is necessary.
When Is an RMD in Year of Death Required?
If you inherit an IRA or another tax-advantaged account that’s subject to RMDs, the timing determines whether you’re required to take an RMD in the year of death.
Here’s how it works:
You must take an RMD if the account owner has reached their required beginning date but has not taken a required minimum distribution…
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