Dear Readers:

Len Tillem passed away on Thursday, January 13, 2022 at the age of 77. A few of his columns were still in the pipeline. Here’s is the first of them.

Dear Len & Rosie,

After my father’s recent death I went in to roll over his IRA, and was told that I couldn’t do it and that I’d have to cash it in over 10 years. I thought I could take out only annual minimum distributions for the rest of my life. This is going to cost me a lot of money. Are they wrong?

Steven

Dear Steven,

If it were still 2019, the IRA custodian would be flat out wrong about the 10-year limit in which you have to cash out an inherited IRA, and you would be able to cash in your father’s IRA over your own life expectancy (life expectancy tables can be found in IRS Publication 590-B).

However, since your father died after 2019, you have to follow the new rules, which were created by the ironically named SECURE Act. Instead of being able to make distributions from an Inherited IRA over the rest of your lifespan, you have to do it within only 10 years of your father’s death.

On the other hand, there are no required minimum distributions that you have to take. You could, if you really wanted to, leave the IRA alone and cash it in all at once 10 years from your father’s death. Unfortunately, since distributions from most IRAs are taxable, you could get another 10 years of tax-deferred growth at the cost of a massive tax bill at the end. Maybe the best thing to do is to take out one-tenth the first year, one-ninth the second year, and so on, so as to spread out the tax liability over ten years.

There are some exceptions. For a minor beneficiary, the 10 year withdrawal period starts only on the person’s 18th birthday, allowing tax-deferred growth until age 28. Also, a beneficiary less than 10 years younger than the decedent, a spouse, or a disabled beneficiary may still cash in the account over his or her life expectancy.

Len & Rosie

Tillem McNichol & Brown