Last August, I wrote about the changes to inherited IRA rules: the 10-year rule, the IRS waiver years, the difference between dying before or after the required beginning date. If you missed it, you can find it here.
That article covered the framework. It still holds.
But in the months since, I have kept noticing the same thing in conversations with new clients and prospects. The articles people are reading get the basics right. They miss the four pieces that actually affect planning.
Here are the four.
1. There Is a New Spousal Election That Saves Real Money
Starting in 2024, a surviving spouse who keeps an inherited IRA in the deceased spouse’s name can make a new election. They can be treated as if they were the deceased owner for required distribution purposes, which means they get to use the Uniform Lifetime Table instead of the Single Life Table to calculate their RMDs.
That sounds small. It is not.
The Uniform Lifetime Table assumes a younger joint life expectancy. The result is a larger divisor each year, which means a smaller required distribution, which means less ordinary income, which means less tax. For an older surviving spouse with a meaningful balance, the cumulative savings over fifteen or twenty years can add up to real money.
Most surviving spouses I meet have never heard of this election. Their prior advisor either did not know about it or did not bring it up.
2. If It Is a Roth, the Annual RMD Goes Away
This one trips up more people than it should.
The annual RMD requirement during the 10-year window applies when the original owner died on or after their required beginning date. Roth IRA owners are not subject to RMDs during their lifetime. For purposes of inherited IRA rules, Roth owners are always treated as having died before their required beginning date.
So if you inherit a Roth IRA as a non-spouse beneficiary, you still have to empty the account by the end of the tenth year. But you do not have to take an annual distribution along the way. You can let it grow tax-free and take it all in year 10 if that is what your situation calls for.
Same 10-year rule. Different planning conversation entirely.
3. The Year-of-Death RMD Is Easy to Miss
If the original owner died on or after their required beginning date and had not yet taken their RMD for the year of death, the beneficiary owes it.
That distribution has to come out by December 31 of the year of death. Not the following year. Not as part of the 10-year drawdown. By the end of the year the original owner passed.
It is a small detail with a real penalty attached, and it is easy to overlook in the middle of an estate settlement when the family is dealing with everything else.
The fix is simple. One of the first conversations a beneficiary should have, alongside the lawyer and the funeral arrangements, is with whoever held the IRA to confirm whether the owner’s RMD for that year was already taken. If it was not, take it.
4. Successor Beneficiaries Do Not Get the Same Treatment
This is the one that breaks estate plans.
Imagine a couple. The husband dies and leaves his IRA to his wife. She treats it as her own, or as inherited, and continues taking distributions over her lifetime under the spousal exception. Perfectly clean.
Then she dies. The remaining balance passes to their adult children.
Those children are not eligible designated beneficiaries. They are successor beneficiaries. And under the rules, successors fall under the 10-year rule regardless of how the original beneficiary held the account.
A lot of estate plans were built on the assumption that a spouse would inherit and stretch, and then the children could stretch from there. That assumption stopped being true in 2020 and is not coming back.
If a multi-generational stretch was part of your strategy, it is worth a conversation. There may be more efficient ways to structure things that produce a similar end result without the trap. Roth conversions during life, charitable beneficiary designations, and trust planning are all worth considering.
A Final Note
None of this is a substitute for a real conversation about your specific situation. Inherited IRA planning is one of the few areas in financial life where the wrong move in year one can compound into real money over a decade. The rules are not intuitive, the IRS has not made them friendlier, and most beneficiaries do not get a second chance to fix a missed step.
If you have inherited an IRA, expect to, or are thinking about how your own retirement account will pass on, the conversation is worth having.
If you would like to walk through your specific situation, I am happy to do that.
John Christopher Harris, WMCP®
Fundamental Advisors, Inc.