Can I Take More Than RMD from Inherited IRA?
Inheriting an Individual Retirement Account (IRA) can be a significant financial windfall, but it also comes with complex tax and distribution rules. One common question that arises is whether you can take more than the Required Minimum Distribution (RMD) from an inherited IRA. Understanding the rules surrounding this topic is crucial to ensure you manage your inherited IRA responsibly and legally.
Understanding RMDs and Inherited IRAs
RMDs are the minimum amounts that must be withdrawn from certain retirement accounts, including traditional IRAs, by the account holder after reaching a certain age. For inherited IRAs, the rules regarding RMDs are different. The first RMD from an inherited IRA must be taken by the end of the year following the year in which the original account holder passed away.
Options for Taking Distributions from an Inherited IRA
When it comes to taking distributions from an inherited IRA, there are several options available:
1. Spousal Beneficiary: If you are the surviving spouse of the IRA owner, you can treat the inherited IRA as your own. This means you can take RMDs based on your life expectancy, and you can even roll the inherited IRA into your own IRA without any penalties.
2. Non-Spousal Beneficiaries: If you are not the surviving spouse, you have two primary options for taking distributions:
a. 5-Year Rule: You must take distributions from the inherited IRA within five years of the original account holder’s death. In this case, you can take more than the RMD if you choose, but the entire balance must be distributed by the end of the fifth year.
b. Life Expectancy Rule: If you are named as a primary beneficiary, you can take RMDs based on your life expectancy. This allows you to take more than the RMD if you wish, as long as you continue to take distributions based on your life expectancy each year.
Important Considerations
While it may be tempting to take more than the RMD from an inherited IRA, there are some important considerations to keep in mind:
1. Tax Implications: Taking more than the RMD can result in higher taxes, as the additional distributions will be taxed as ordinary income.
2. Potential Penalties: If you fail to take the required minimum distribution from an inherited IRA, you may be subject to a 50% penalty on the amount that should have been distributed.
3. Financial Planning: Carefully consider your financial situation and long-term goals before deciding to take more than the RMD. Taking additional distributions may affect your eligibility for certain tax benefits and social security benefits.
Seek Professional Advice
Navigating the rules surrounding inherited IRAs and RMDs can be challenging. It is always advisable to consult with a financial advisor or tax professional to ensure you are making the best decisions for your situation. They can help you understand the implications of taking more than the RMD and guide you in managing your inherited IRA responsibly.
