Tax Prep by Deb Posted February 19 Report Share Posted February 19 I have a question, the more I read the more confused I get. My brother passed away in 2020 and named me as his beneficiary on his 401K. He was 60 years old when he passed away and I am two years younger than he is. When do I have to start withdrawing from the 401K? Do I have an RMD now? If so I am in trouble because I haven't touched it. Any thoughts would be appreciated. Quote Link to comment Share on other sites More sharing options...
BulldogTom Posted February 19 Report Share Posted February 19 This is really cloudy right now because the rules have changed a bunch. If I understand it correctly, as an eligible beneficiary (because you are not more than 10 years younger than the decedent), you may take the RMDs based you life expectancy. Below is an excerpt from the IRS website: Non-spouse beneficiary options In 2020 and later, options for a beneficiary who is not the spouse of the deceased account owner depend on whether they are an "eligible designated beneficiary." An eligible designated beneficiary is Spouse or minor child of the deceased account holder Disabled or chronically ill individual Individual who is not more than 10 years younger than the IRA owner or plan participant An eligible designated beneficiary may Take distributions over the longer of their own life expectancy and the employee's remaining life expectancy, or Follow the 10-year rule (if the account owner died before that owner's required beginning date) Tom Longview, TX 3 Quote Link to comment Share on other sites More sharing options...
Tax Prep by Deb Posted February 19 Author Report Share Posted February 19 But when do I have to start taking them? Quote Link to comment Share on other sites More sharing options...
BulldogTom Posted February 19 Report Share Posted February 19 I "Think" you have to start taking them now. IRS just finalized this rule, and I "think" they are automatically waiving the penalties for 2021 & 2022. And I "think" if you take the RMD this year before the due date of your return and then by 12/31 for your 2024 RMD you will be OK. I "Think" the rule for the inherited 401K for you is the same for any first year RMD requirement. As an aside, I am pretty sure you can roll this into an inherited IRA, and I would recommend that you do so, because I "think" the 401K provider does not have to allow you to do what the law says you can do. The 401K plan rules may not be updated. If it was me, I would get it into an inherited IRA and start taking the RMDs over my life expectancy. Lots of "thinking" but nothing concrete from me. Sorry. Tom Longview, TX 1 Quote Link to comment Share on other sites More sharing options...
Lee B Posted February 19 Report Share Posted February 19 Why don't you call the fiduciary for your 401 K. They have the experts on hand to answer your questions. Quote Link to comment Share on other sites More sharing options...
mcbreck Posted February 19 Report Share Posted February 19 The beneficiary (unless spouse) is required to withdraw all the funds within 10 years and you should take yearly distributions. Doesn't matter if the original owner was taking distributions or not. Even before this new set of rules, inherited IRAs were supposed to take immediate RMDs based upon their own life. There are exceptions to the 10 year rule - spouse, disabled child, child of the deceased who is a minor and if the person inheriting the IRA is <10 years younger than the original owner. As your brother, you MUST begin taking RMDs now. Whether it is your life expectancy or 10 years I do not know. You'd be called an "eligible designated beneficiary." I think it's probably your life expectancy if you wish it to be but check with the custodian. 1 Quote Link to comment Share on other sites More sharing options...
Lee B Posted February 20 Report Share Posted February 20 My reading now that I have more time says, that, according to SECURE 1.0 an eligible designated beneficiary who is less than ten years younger than the account holder of the 401 k who dies before the required beginning date of their RMD is exempt from the so called "ten year rule" and can use their own life expectancy to calculate their RMDs. You have until 12/31 of the year following the year of their death to begin taking you distributions. Frankly it took me quite a bit of reading to arrive at that conclusion. It shouldn't have to be that complicated ! 2 Quote Link to comment Share on other sites More sharing options...
Bart Posted February 20 Report Share Posted February 20 The 10 year rule says you have to take the money out of the inherited retirement plan by the end of 10 years. You could take it all out in year 10. Quote Link to comment Share on other sites More sharing options...
Lee B Posted February 20 Report Share Posted February 20 Here a very good article in the Journal of Accountancy: https://www.journalofaccountancy.com/issues/2023/apr/beneficiary-iras-a-guide-to-the-rmd-maze.html 1 Quote Link to comment Share on other sites More sharing options...
BrewOne Posted February 20 Report Share Posted February 20 Best I can see, Notice 2022-53 (under the 10 year rule RMD's must start in 2023) still hasn't been finalized and has been postponed for one year (2024). I would pay close attention if I had advised anyone that they had 10 years to take the money out. Quote Link to comment Share on other sites More sharing options...
Randall Posted February 20 Report Share Posted February 20 11 hours ago, Lee B said: It shouldn't have to be that complicated ! None of this should be that complicated. But on and on it goes. Quote Link to comment Share on other sites More sharing options...
BulldogTom Posted February 20 Report Share Posted February 20 12 hours ago, Lee B said: My reading now that I have more time says, that, according to SECURE 1.0 an eligible designated beneficiary who is less than ten years younger than the account holder of the 401 k who dies before the required beginning date of their RMD is exempt from the so called "ten year rule" and can use their own life expectancy to calculate their RMDs. You have until 12/31 of the year following the year of their death to begin taking you distributions. Frankly it took me quite a bit of reading to arrive at that conclusion. It shouldn't have to be that complicated ! @Lee B But Secure Act 2.0 changed the Secure Act 1.0 rules for deaths occurring after 12/31/2019 and the OP states that her brother passed in 2020. I think the result is the same for the OP under both sets of rules, but the 2.0 rules are in effect in this case. Tom Longview, TX Quote Link to comment Share on other sites More sharing options...
Lee B Posted February 20 Report Share Posted February 20 I reread the Journal of Accountancy article again and I still stand by my post. There is also a discussion about catch up distributions and the reduction in excise taxes on late distributions that should help Deb. Quote Link to comment Share on other sites More sharing options...
Tax Prep by Deb Posted February 20 Author Report Share Posted February 20 I called the account administrator and he pulled up everything on my brother's account and my beneficiary account and according to him I have ten years to take it out. So I am still not sure what to do. I really don't need the money, would rather wait till I have a slower income year to pull it, but at the same time I do not want to have to pay penalties on not taking it. Quote Link to comment Share on other sites More sharing options...
BulldogTom Posted February 20 Report Share Posted February 20 @Tax Prep by Deb Did you go to a Spidell update seminar? If so, look in the book on pages 1-42 and 1-43 and especially the caution box on page 1-43. The employer has the right to force you into the 10 year rule. Tom Longview, TX 1 Quote Link to comment Share on other sites More sharing options...
BulldogTom Posted February 20 Report Share Posted February 20 Inherited IRA Rules.pdf Here is the section of the seminar (now that I am in my office I can actually look stuff up). I don't think Spidell will sue me for putting this out here. Hope this helps Tom Longview, TX 2 Quote Link to comment Share on other sites More sharing options...
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