QUESTION:
I inherited both a traditional and a Roth IRA from my significant other (non-spouse) who passed away in 2021. He had started taking required minimum distributions (RMDs). I am less than 10 years younger than he was. Question is: do I or do I not have to empty both accounts within 10 years of his death? No one is giving me an answer one way or another.
ANSWER:
There are a few moving parts here, so it is no surprise you can’t find a straight answer. Since you are “not more than 10 years younger” than the deceased account owner, you qualify as an eligible designated beneficiary (EDB) under the SECURE Act. As an EDB, the payout structure is based on the type of account. For the traditional IRA, you can take annual stretch RMDs based on your own single life expectancy. Use your age in 2022 to determine the original life expectancy factor, then subtract 1 each year thereafter. The 10-year rule does not apply.
For the inherited Roth IRA, you have a couple of options. As an EDB, you could choose the 10-year payout rule. There are no RMDs within the 10-year period on inherited Roth IRAs. Or, you could choose lifetime stretch RMD payments. These RMDs would be calculated the same way as on the traditional IRA.
QUESTION:
I have purchased your books and followed your articles over the past 25 years. Thank you for your knowledge. Next year I am required to take my first RMD as I will be age 73. I have been retired since 2019. I have never taken any distribution from my 401(k) and have appreciated company stock. I understand a net unrealized appreciation (NUA) transaction can count towards an RMD. My question: does both the cost basis and the NUA portion count toward the RMD? Or does just the cost basis count towards the RMD? I have received some conflicting answers to this question.
Sincerely,
Dom
ANSWER:
Dom,
Yes, you can leverage the NUA tax strategy in conjunction with an RMD distribution. It appears you may be eligible for NUA as you have hit the separation-from-service trigger and have not touched the 401(k). If you pursue an NUA distribution, only the cost basis will be taxed as ordinary income in the year of the distribution. However, the total NUA distribution (cost basis AND appreciation) will count toward your RMD.
Inherited IRAs and Net Unrealized Appreciation: Today’s Slott Report Mailbag
Specializing in private wealth management, we provide education, guidance, and strategies to help you achieve a tax-efficient retirement income.
Investment advisory services offered through Donato Wealth Management, PLLC, dba Empower Wealth Management and Empower Wealth & Tax (“Empower Wealth Management” or “EWM”),
an SEC registered investment adviser that only conducts business in jurisdictions where it is properly registered, or is excluded or exempted from registration requirements. Registration as an investment adviser is not an endorsement of the firm by securities regulators and does not mean the adviser has achieved a specific level of skill or ability. The firm is not engaged in the practice of law or accounting.
The information presented is believed to be current. It should not be viewed as personalized investment advice. All expressions of opinion reflect the judgment of the authors on the date of publication and may change in response to market conditions. You should consult with a professional adviser before implementing any strategies discussed. Content should not be viewed as an offer to buy or sell any of the securities mentioned, or as legal or tax advice. You should always consult an attorney or tax professional regarding your specific legal or tax situation. Personal investment advice can only be rendered after the engagement of EWM, execution of required documentation, and receipt of required disclosures. All investment and insurance strategies have the potential for profit or loss. Asset allocation and diversification will not necessarily improve an investor’s returns and cannot eliminate the risk of investment losses. Past performance is no guarantee of future results. For more information, please go to https://adviserinfo.sec.gov and search by our firm name or by our CRD #305031.
Insurance products and tax services are offered through Senior Tax and Insurance Advisors, PLLC, dba Empower Wealth Group (“Empower Wealth Group” or “EWG”). Any comments regarding safe and secure investments and guaranteed income streams refer only to fixed insurance products. They do not in any way refer to investment advisory products offered through EWM. Rates and guarantees provided by insurance products and annuities are subject to the financial strength of the issuing insurance company; not guaranteed by any bank or the FDIC. EWG is not affiliated with or endorsed by the U.S. Government, Social Security Administration, nor the federal Medicare program. You may be contacted by a licensed insurance agent. Calling the number above will direct you to a licensed insurance agent. EWG may not offer every plan available in your area. Any information provided is limited to plans available in your area. Please contact Medicare.gov or 1-800-MEDICARE.
EWM and EWG are both affiliated companies of Empower Wealth, LLC (“Empower”). Investment adviser representatives of EWM may have a financial incentive to recommend tax and insurance products and/or services offered through EWG which presents a conflict of interest. This conflict is addressed by EWM’s adoption of its Code of Ethics, which requires that all EWM’s Associated Persons place the interest of clients ahead of their own. Clients of EWM are also free to choose their own tax and/or insurance professionals and are under no obligation to utilize the services offered through any related entities or persons associated with Empower.
Strategic Partners listed on this page are not employees of EWM and are not affiliated through common ownership.
We do not offer every plan available in your area. Any information we provide is limited to those plans we do offer in your area. Please contact Medicare.gov or 1-800-MEDICARE to get information on all of your options.
© Empower Wealth Management All Rights Reserved.