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RMD rules for inherited IRAs

The IRA you're inheriting comes with a few responsibilities. Here's a rundown of what you need to know.

What's an RMD?

The IRS requires that most owners of IRAs withdraw part of their tax-deferred savings each year, starting at age 72 (age 70½ if you attained age 70½ before 2020) or after inheriting any IRA account for certain individual beneficiaries. That withdrawal is known as a required minimum distribution (RMD). If you withdraw less than your RMD, you may owe a 50% penalty tax on the difference.

The CARES Act provides a temporary waiver of RMDs for 2020 including any delayed 2019 RMD (if the 2019 RMD wasn't taken before January 1, 2020). If you would have had an RMD obligation for 2020, you do not have to take your RMD for 2020 (or delayed 2019 RMD) if you don't want to. This includes inherited IRA RMD obligations for 2020 as well.

If you have already taken a withdrawal in 2020 that would have been an RMD (had RMDs not been waived), you may be eligible to roll the money over. All or a portion of a distribution already taken in 2020 (that would have represented an RMD, had RMDs not been waived) may be rolled over back into an IRA by August 31, 2020. Rollovers of RMDs taken in 2020 don't count toward the IRA one-rollover-per-365-days rule.

New guidance permits RMDs taken in 2020 from inherited IRAs to be rolled back into the inherited IRA the distribution came from, by August 31, 2020.

For more information about the rollover rules, go to irs.gov or consult a tax advisor.

RMDs are designed to ensure that investments in IRAs don't grow tax-deferred forever and this carries over to the beneficiary of the IRA. The rules for how IRA beneficiaries must take RMDs will depend on when the account owner passed away.

The account owner's required beginning date (RBD)

IRA owners generally must take their first RMD by April 1 of the year after they reach age 72 (age 70½ if you attained age 70½ before 2020); that date is called their required beginning date (RBD).

Inherited RMD calculation methods

The date of death of the original IRA owner and the type of beneficiary will determine what distribution method to use. You must take an RMD for the year of the IRA owner's death if the owner had an RMD obligation that wasn't satisfied.

For an inherited IRA received from a decedent who passed away after December 31, 2019:

Generally, a designated beneficiary is required to liquidate the account by the end of the 10th year following the year of death of the IRA owner (this is known as the 10-year rule). During the 10-year period, the beneficiary may take distributions of any amount at any frequency. There are exceptions for certain eligible designated beneficiaries, defined by the IRS, as someone who is either:

  • The IRA owners' spouse.
  • The IRA owner's minor child.*
  • An individual who is not more than 10 years younger than the IRA owner.
  • Disabled (as defined by the IRS).
  • Chronically ill (as defined by the IRS).

*Once a minor child reaches the age of majority, they'll become subject to the 10-year rule.

An eligible designated beneficiary may choose to use either the 10-year rule or the lifetime distribution rules that were in effect prior to 2020 and are specified in the "For an inherited IRA received from a decedent who passed away before January 1, 2020" section below.

Note: Vanguard's RMD Service doesn't accommodate accounts that are being distributed according to the 10-year rule. If you've elected, or are required, to use the 10-year rule for your inherited account, you should consult your tax advisor if you have any questions about taking distributions in accordance with this rule. A non-designated beneficiary (e.g., a non-individual such as an estate or charity) would generally be subject to the 5-year rule if the account owner died before he or she was required to begin taking RMDs (April 1st of the year following the year in which the owner reached RMD age). If the IRA owner passed away on or after April 1st of the year following the year in which the owner reached RMD age, the non-designated beneficiary would be subject to an RMD based on the original IRA owner's life expectancy factor. Special rules apply for certain types of trusts.

For an inherited IRA received from a decedent who passed away before January 1, 2020:

When a beneficiary becomes entitled to an IRA from an account owner who died before he or she was required to begin taking RMDs (April 1st of the year following the year in which the owner reached RMD age), the beneficiary can choose one of two methods of distribution: over his or her lifetime or within five years (the "five-year rule").

Lifetime distribution

Spouse as sole primary beneficiary. If the owner's spouse chooses to take the IRA as a beneficiary rather than assume the account, he or she can choose when to begin taking RMDs on the basis of his or her own life expectancy. The spouse must begin taking RMDs by the later of December 31 of the year after the owner's death or December 31 of the year the owner would have reached RMD age. The spousal beneficiary should not enroll in our RMD Service until the year he or she intends to begin taking RMDs. If the owner's spouse chooses to assume the IRA, he or she must begin taking RMDs by the later of December 31 of the year after the owner's death or April 1 of the year after the spouse reaches RMD age.

Non-spouse and when spouse is not sole primary beneficiary. An individual non-spouse beneficiary must begin taking RMDs on the basis of his or her own life expectancy by December 31 of the year after the owner's death. Multiple beneficiaries can take RMDs on the basis of their own life expectancies if all of the beneficiaries have established separate accounts by December 31 of the year after the owner's death and starting in that year. If all multiple beneficiaries have not established separate accounts by that December 31 date, all beneficiaries must take RMDs on the basis of the oldest beneficiary's life expectancy starting in the year after the owner's death.

Five-year rule

Any individual beneficiary may elect to distribute the inherited IRA assets over the five years following the owner's death. The distribution must be completed by the end of the year containing the fifth anniversary of the owner's death. Any non-individual beneficiary (except for a qualified trust) must use the five-year rule if the owner died before beginning to take RMDs.

Note: Vanguard's RMD Service doesn't accommodate accounts that are being distributed according to the five-year rule. If you've elected, or are required, to use the five-year rule for your inherited account, you should consult your tax advisor if you have any questions about taking distributions in accordance with this rule.

Roth IRAs & RMDs

Roth IRA owners don't need to take RMDs during their lifetimes, but beneficiaries who inherit Roth IRAs must take RMDs.

If you're inheriting a Roth IRA, your RMD would be calculated as outlined above.

Getting started

Tell us a few details about the person who passed away. We'll let you know if you can complete the process online, or if you need to call us.

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Stay organized

We know that inheriting a Vanguard account is just one of the tasks on your to-do list during this busy time.

Your questions answered

We've found that people inheriting accounts tend to have similar questions.

Inheritance glossary

Being familiar with these terms might help as you transfer your loved one's account into your name.

REFERENCE CONTENT

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Required beginning date

April 1 of the year after the year in which the original IRA owner reaches age 70½, generally the date by which the first required minimum distribution (RMD) must be taken.

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Required beginning date

April 1 of the year after the year in which the original IRA owner reaches age 70½, generally the date by which the first required minimum distribution (RMD) must be taken.

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Qualified beneficiaries

A beneficiary who has neither received a lump-sum payment nor disclaimed the IRA before September 30 of the year after the year of the IRA owner's death. Qualified beneficiaries include a spouse who isn't the IRA's only beneficiary; nonspouse beneficiaries; and qualifying trusts. Trusts must meet all of the following conditions to be considered qualifying:

  • The trust must be irrevocable or become irrevocable upon the IRA owner's death.
  • The trust must be valid under state law.
  • Beneficiaries are identifiable in the trust document.
  • The custodian must be provided a copy of the trust document or a list of the trust's beneficiaries and conditions by October 31 of the year after the year of the IRA owner's death.
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Nonqualified beneficiaries

Beneficiaries that aren't people, such as charities or organizations; the IRA owner's estate; or nonqualifying trusts.

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Required beginning date (RBD)

April 1 of the year after the year in which the original IRA owner reaches age 70½, generally the date by which the first required minimum distribution (RMD) must be taken.

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Qualified beneficiaries

A beneficiary who has neither received a lump-sum payment nor disclaimed the IRA before September 30 of the year after the year of the IRA owner's death. Qualified beneficiaries include a spouse who isn't the IRA's only beneficiary; nonspouse beneficiaries; and qualifying trusts. Trusts must meet all of the following conditions to be considered qualifying:

  • The trust must be irrevocable or become irrevocable upon the IRA owner's death.
  • The trust must be valid under state law.
  • Beneficiaries are identifiable in the trust document.
  • The custodian must be provided a copy of the trust document or a list of the trust's beneficiaries and conditions by October 31 of the year after the year of the IRA owner's death.
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Nonqualified beneficiaries

Beneficiaries that aren't people, such as charities or organizations; the IRA owner's estate; or nonqualifying trusts.