How to Calculate Required Minimum Distribution Inherited IRA
Understanding the required minimum distribution (RMD) for an inherited IRA is crucial for individuals who have inherited an IRA from a deceased account holder. The RMD is the minimum amount of money that must be withdrawn from an IRA each year after the account holder’s death. Calculating the RMD for an inherited IRA can be complex, but with the right information and guidelines, it can be done accurately. This article will provide a step-by-step guide on how to calculate the required minimum distribution inherited IRA.
Step 1: Determine the Account Beneficiary
The first step in calculating the RMD for an inherited IRA is to identify the account’s designated beneficiary. The RMD rules vary depending on whether the beneficiary is an individual, a trust, or a charity. If the beneficiary is an individual, they will need to follow the life expectancy table provided by the IRS to determine the RMD.
Step 2: Find the Account Value
Next, you will need to determine the value of the inherited IRA as of the deceased account holder’s death. This value will be used to calculate the RMD. If the deceased account holder passed away on or after December 31, 2020, the IRA value is the fair market value of the IRA as of the date of death. If the deceased passed away before this date, the IRA value is the fair market value of the IRA as of the date of death or December 31 of the year of death, whichever is later.
Step 3: Determine the Life Expectancy
Once you have the account value, you must determine the life expectancy of the designated beneficiary. The life expectancy is based on the IRS’ Single Life Expectancy Table, which provides a life expectancy factor for each year. The factor is used to calculate the RMD for the year. For example, if the designated beneficiary is 50 years old, their life expectancy factor for the first year would be 49.2 years.
Step 4: Calculate the RMD
To calculate the RMD, divide the account value by the life expectancy factor. For example, if the inherited IRA has a value of $100,000 and the life expectancy factor is 49.2, the RMD for the first year would be $2,041.74 ($100,000 / 49.2).
Step 5: Take the RMD by December 31
The RMD must be taken by December 31 of the year following the year in which the deceased account holder passed away. For example, if the deceased account holder passed away in 2022, the RMD for 2023 must be taken by December 31, 2023.
Conclusion
Calculating the required minimum distribution for an inherited IRA can be a challenging task, but following these steps can help ensure accuracy. By determining the account beneficiary, finding the account value, determining the life expectancy, calculating the RMD, and taking the distribution by the required deadline, individuals can meet their obligations and avoid potential penalties. Always consult with a tax professional or financial advisor if you have any questions or concerns regarding the RMD for an inherited IRA.
