Inherited Ira Distribution Calculator

Inherited IRA 10-Year Rule Distribution Calculator

Distribution Plan Summary

Original Owner's Year of Death:

10-Year Distribution Deadline:

Years Remaining in 10-Year Period:

Projected Balance at Deadline (if no distributions until " + distributionDeadlineYear + "):

Suggested Equal Annual Distribution (over " + yearsRemainingInPeriod + " years):

Understanding Inherited IRA Distributions with the 10-Year Rule

Inheriting an Individual Retirement Account (IRA) can be a significant financial event, but it comes with specific rules regarding how and when you must withdraw the funds. The rules for inherited IRAs were substantially changed by the SECURE Act of 2019, particularly for non-spouse beneficiaries. This calculator focuses on helping you understand and plan for distributions under the most common scenario: the 10-Year Rule.

What is an Inherited IRA?

An inherited IRA is an IRA that passes to a beneficiary after the original owner's death. The tax treatment and distribution requirements depend heavily on your relationship to the deceased (spouse vs. non-spouse) and the original owner's age at death.

The SECURE Act and the 10-Year Rule

Prior to the SECURE Act, many non-spouse beneficiaries could "stretch" distributions over their own life expectancy, allowing the inherited IRA to continue growing tax-deferred for decades. The SECURE Act largely eliminated this "stretch" provision for most non-spouse beneficiaries.

Under the 10-Year Rule, if you are a non-spouse beneficiary (and not an "eligible designated beneficiary" as defined below), you must fully distribute the inherited IRA by December 31st of the tenth year following the year of the original owner's death. For example, if the original owner died in 2022, the inherited IRA must be completely empty by December 31, 2032.

Key points of the 10-Year Rule:

• No Annual RMDs (Generally): For most non-spouse beneficiaries, there are no required minimum distributions (RMDs) in years 1 through 9 of the 10-year period. You can choose to take distributions at any time during this period, or wait until the very end.
• Full Distribution by Year 10: The entire balance must be withdrawn by the end of the 10th year. Failure to do so can result in a hefty 25% (or even 50% if not corrected) excise tax on the undistributed amount.
• Taxable Income: All distributions from a traditional inherited IRA are generally taxable as ordinary income in the year they are received. Distributions from an inherited Roth IRA are typically tax-free, provided the Roth IRA has been open for at least five years.

Who is Exempt from the 10-Year Rule? (Eligible Designated Beneficiaries)

Certain beneficiaries are considered "Eligible Designated Beneficiaries" (EDBs) and may still be able to stretch distributions over their life expectancy, or have other options:

• Spouses: A surviving spouse has several options, including rolling the inherited IRA into their own IRA, treating it as their own, or taking distributions as an inherited IRA over their life expectancy.
• Minor Children of the Deceased: They can stretch distributions until they reach the age of majority (typically 21), at which point the 10-year rule begins.
• Disabled Individuals: As defined by the IRS.
• Chronically Ill Individuals: As defined by the IRS.
• Individuals Not More Than 10 Years Younger Than the Deceased: This allows some older non-spouse beneficiaries to continue stretching distributions.

If you fall into one of these categories, the 10-year rule may not apply to you, and you should consult with a financial advisor or tax professional.

How to Use the Inherited IRA Distribution Calculator

This calculator helps non-spouse beneficiaries subject to the 10-year rule plan their distributions. Here's what each input means:

• Current Inherited IRA Balance: Enter the current value of your inherited IRA.
• Year of Original Owner's Death: Input the calendar year the original IRA owner passed away. This is crucial for determining the 10-year deadline.
• Current Calendar Year: Enter the current year you are performing the calculation.
• Expected Annual Growth Rate (%): Provide an estimated annual investment return for the IRA. This helps project its future value.

Understanding the Calculator's Results

The calculator will provide you with key information to help you plan:

• 10-Year Distribution Deadline: The exact year by which the inherited IRA must be fully distributed.
• Years Remaining in 10-Year Period: How many years you have left from the current year until the deadline.
• Projected Balance at Deadline: This shows what your inherited IRA could be worth at the end of the 10-year period if you take no distributions until then, assuming your specified growth rate. This is the amount you would need to withdraw in the final year.
• Suggested Equal Annual Distribution: This provides an estimated amount you could withdraw each year, starting from the current year, to deplete the account by the deadline, assuming the remaining balance continues to grow. This is a planning tool to help you spread out the tax liability, not a mandated RMD.

Example Scenario:

Let's say you inherited an IRA with a current balance of $150,000. The original owner died in 2022. It's currently 2024, and you expect an average annual growth rate of 6%.

• Current Inherited IRA Balance: $150,000
• Year of Original Owner's Death: 2022
• Current Calendar Year: 2024
• Expected Annual Growth Rate (%): 6%

Based on these inputs, the calculator would show:

• 10-Year Distribution Deadline: December 31st, 2032
• Years Remaining in 10-Year Period: 8 years (from 2024 to 2032)
• Projected Balance at Deadline (if no distributions until 2032): Approximately $238,900.00. This is the amount you'd need to withdraw in 2032.
• Suggested Equal Annual Distribution (over 8 years): Approximately $24,100.00 per year. This is an estimated amount you could withdraw annually to spread out the tax burden.

Important Considerations:

• Tax Implications: Distributions from traditional inherited IRAs are taxable. Consider your current and future tax brackets when planning withdrawals. Taking a large lump sum in the final year could push you into a higher tax bracket.
• Investment Growth: The projected growth rate is an estimate. Actual returns may vary.
• Professional Advice: This calculator is a planning tool and not a substitute for professional financial or tax advice. Inherited IRA rules can be complex, and your specific situation may have unique considerations. Always consult with a qualified financial advisor or tax professional.