October 10, 2019

Inherited IRAs | Berry’s Bites

Inherited IRA’s and Required Minimum Distributions. Attorney and Advisor Chris Berry discusses how RMDs work with inherited IRAs.

Today on Berry’s Bites, we’re going to talk about the concept of inherited IRAs. So when you turn 70 and a half, you have to take out what’s called required minimum distributions. So at age 70 and a half, if you have $1 million inside of an IRA, you have to take out roughly 3.65%, pay the tax and then you don’t have to spend the money. You can invest it. Do whatever you want.

But a common question comes up of what happens when it becomes an inherited IRA, so when it passes down to the next generation. Well, what happens is no matter what, regardless of age, there has to be an RMD, required minimum distribution that comes out.

Inherited IRAs Transcript:

Hey, this is Chris Berry. Today on Berry’s Bites, we’re going to talk about the concept of inherited IRAs. So when you turn 70 and a half, you have to take out what’s called required minimum distributions. So at age 70 and a half, if you have $1 million inside of an IRA, you have to take out roughly 3.65%, pay the tax and then you don’t have to spend the money. You can invest it. Do whatever you want.

But a common question comes up of what happens when it becomes an inherited IRA, so when it passes down to the next generation. Well, what happens is no matter what, regardless of age, there has to be an RMD, required minimum distribution that comes out. So age 70 and a half, it might be 3.65%. At age 40, it might be 2%. But regardless, you still have to take out that required minimum distribution. Now, this might be something that’s changing with the Secure Act, where right now you can stretch it out over the lifetime of a beneficiary. But if the Secure Act passes, then we’ll only be able to stretch it out up to 10 years. But the important point here is that regardless of age, there will have to be an RMD, required minimum distribution, paid on that IRA when it becomes an inherited IRA regardless of age. Now, the younger you are, the smaller that percentage is. But yes, there has to be an RMD.