By - kozism
>My question is since this is an IRA for an older individual that passed away - how does it get passed on in to the beneficiaries?
You can't combine it with your own IRAs and will need to withdraw the balance within 10 years.
You only need to withdraw the balance within ten years if it’s a Roth IRA. If it’s a traditional IRA then there’s a schedule for (taxable) RMDs.
> If it’s a traditional IRA then there’s a schedule for (taxable) RMDs.
Those are the old rules. They were changed on Jan 1 2020
>The "stretch IRA" provision has generally been eliminated for non-spousal IRAs. For IRAs inherited from original owners who have passed away on or after January 1, 2020, the new law requires many beneficiaries to withdraw all assets from an inherited IRA or 401(k) plan within 10 years following the death of the account holder.
Inheriting an IRA has some [particular rules](https://www.forbes.com/advisor/retirement/inherited-ira-rmd-rules/) and are much more limited when the beneficiary is not the deceased's spouse. Those rules also changed with the SECURE act (passed in 2019, affecting IRAs inherited in or after 2020), you want to make sure you're looking at the right rules that apply to your situation.
Were you the only named beneficiary of that IRA, or was your mom one also? There could've been some additional complications if Dad had been taking RMDs, but it sounds like he hadn't gotten to that point yet?
In general for account owners who died after January 2020 and non-spouse beneficiary:
* The IRA balance gets moved into an "inherited IRA" owned by the beneficiary. IIRC, each beneficiary gets their own account, the balance split among them in whatever allocation was chosen by the original owner. This may or may not involve liquidating the old IRA's assets; shares might get moved "in kind" to the inherited IRA.
* The tax treatment of the inherited IRA will be the same as the original. So your situation looks like you get a Traditional inherited IRA, withdrawals will be treated as taxable income to you. If Dad had a Roth IRA, your inherited IRA would also be a Roth.
* The balance can be invested within that inherited IRA by the new owner however they want. You **cannot** roll this balance over into a non-inherited IRA.
* Under the SECURE act, the new owner has no annual "RMD". However the balance must be fully withdrawn by December 31 of the year 10 years from the date of the original owner's death. So you have until December 31 of 2031 to zero it out. Failure to do so results in 50% (!) of the unwithdrawn balance owed as penalty. I'm not sure if this is a one-time penalty or if it'd get assessed every year after.
If Mom was a beneficiary, she has a bit more flexibility with her share. Well, assuming they were married at the time of your Dad's death. Her inherited IRA **can** be rolled into any regular IRA in her name, or left as an inherited IRA, or (I think?) the original IRA can be transitioned into her name once the other beneficiaries have gotten their share.
Thank you for the information. My dad did not have to take RMDs yet due to his age.
My mom and him were still married and she is listed as a beneficiary. I think the play here is have my mom manage it as an inherited IRA in her name and I can help guide her to grow the money that way. From what I understand both my mom and dad have traditional IRAs.
So is your mom the only beneficiary of the IRA, you're just planning to help her manage it? Or are you inheriting a share which would need to be removed before she can proceed?
The way I've got my own IRAs setup is that my wife is the only "primary" beneficiary at 100%. If she can't inherit (say we both died in the same car crash), I have my children set as "contingent" beneficiaries with an equal split, but they only inherit when no primary beneficiaries are available. If your dad's was the same, that entire IRA balance is all your mom's money, and she can do what she wants (with your help/input) under the "spousal beneficiary" rules. If you and mom were both "primary" beneficiaries, your share would fall under the non-spouse rules.
I'd expect Fidelity would likely be able to offer some help around the particular steps that need to be taken to get this IRA split / transferred to the named beneficiaries. Once that's done, you can look into next steps on how to manage those new accounts.
Manage the tax piece. If you are earning less but expect more within 10 years, withdraw more than $50k now, and pay the taxes but then turn around and invest in something via brokerage, for the long term.
If you expect steady, $50k per year is fine.
If you expect more now and less or retire in tail end, take more then and little to none now.
If you’re really up for it, you can sell off in inherited ira now, buy stocks and then wait to do the conversions (distributions in kind) when there is a massive dip, I expect one or a few within the next ten years, not as big as 03/2020 but who knows it’s a bit timing market but more like waiting for drop then rise.
I make good money for my age (early 30s) and I expect it to keep growing. Right now I W2 around $200k/yr.
Since my mom is a beneficiary I would like her to inherit the IRA in her name and I can help pick stocks for her IRA to keep growing. She still works herself so needing money is not an issue today. To avoid paying taxes today I think letting it continue to grow with stocks in her IRA is the best idea.
Hi u/kozism, this is u/FidelityJessica from r/fidelityinvestments.
Please accept our condolences on the passing of your father. When an IRA owner passes, the assets are typically transferred into Beneficiary Designated Account(s), or IRA BDA for short. The investments in the original IRA can typically be transferred in-kind to the receiving IRA BDA(s). Depending on the beneficiary's relationship to the original owner of the account, different choices may be available for completing Required Minimum Distributions (RMDs).
A spouse of the original account owner will take a required minimum distribution (RMD) based on their age and is recalculated each year based on factors in the IRS Single Life Expectancy Table (found in the link below).
Non-spouse distribution requirements will be based on certain factors, including the date of the original account owner’s passing. Deaths after January 1, 2020, require the beneficiary to fully distribute the account within 10 years following the passing of the original account owner. However, there are exceptions if you are considered an eligible designated beneficiary (i.e. a minor child of the original account owner).
The link provided below contains additional information on withdrawal rules for spouses, non-spouses, and entities (trusts, charities, estates):
[RMD rules for inherited IRAs](https://www.fidelity.com/building-savings/learn-about-iras/inherited-ira-rmd)
[Learn about beneficiary choices when inheriting IRA assets](https://www.fidelity.com/retirement-ira/inherited-ira/learn-about-your-choices)
[If you haven't done so already, please notify us of the passing of your father so we can help you transfer assets from the original IRA.](https://digital.fidelity.com/prgw/digital/transitionservices/notify-of-death)
I hope that my answer was helpful. With that, I am closing out my response here and am not planning on checking back in on this one. If you still have questions for Fidelity, please head over to r/fidelityinvestments.
Sorry for your loss.
The account transitions to being an “inherited IRA” and there are rules for minimum withdrawals based on a life expectancy table. If it’s a Roth IRA then there are different rules - I think that, based on your father’s date of death, the account must be fully withdrawn from within ten years, or if you were not yet 18, within ten years after attaining age 18.
If there are multiple beneficiaries then the assets must be distributed according to the percentages specified with Fidelity.
You can get specifics by contacting Fidelity. They will need a copy of the death certificate to commence the distribution(s).
You may find these links helpful:
- [Retirement Accounts](/r/personalfinance/wiki/index#wiki_retirement)
- ["How to handle $"](/r/personalfinance/wiki/commontopics)
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