The IRS recently announced that there would be no penalty for failing to take RMDs on certain inherited IRA accounts during 2024. This affects IRAs inherited from a decedent who died in 2020 or after. These IRAs are subject to the ten-year rule, i.e., all of the funds must be withdrawn by the end of the year containing the 10th anniversary of the death.
Anybody who inherited an IRA account earlier than 2020 will still use the ‘stretch IRA’ rules for taking distributions. The stretch rules allow the inheritor to spread distributions over their own life expectancies thus minimizing the tax impact. **
The IRS also announced that the final regulations for RMDs on inherited IRAs are expected to apply to RMDs for 2025.
Even if you are not required to take a distribution from an inherited IRA this year, you might want to consider whether leaving all of the money in the IRA until the very last year (or until the final regulations are issued) is the right move.
Generally speaking, withdrawals from traditional IRAs are fully taxable as ordinary income. While we all want to put off paying taxes as long as possible, know that a large single withdrawal at the end of the ten-year period could boost you into a higher tax bracket. Not only that, but there is the potential to lose some deductions due to a higher Adjusted Gross Income (AGI). Finally, as we discussed back in February, the currently ‘low’ tax brackets are due to expire in 2026.
If the IRS does rule that inheritors of IRAs must take distributions in all of the years one through ten, you will have to ensure starting in 2025 that you take at least the right amount in each year – or more if it suits you for both financial and tax planning.
Vanguard offers an online inherited IRA calculator that you can use to calculate your required RMD for 2024.
https://inherited-rmd-calculator.web.vanguard.com.
** This same grandfathered treatment generally applies to IRA-inheritors who fall into any of five classes of "eligible designated beneficiaries": Surviving spouses, minor children of the account owner, disabled people, the chronically ill, and people who are either older than or not more than 10 years younger than the deceased IRA owner.