Starting in 2025, certain non-spouse beneficiaries of inherited IRAs will face penalties for missing required annual withdrawals. These rules apply if the original IRA owner reached their required minimum distribution (RMD) age before death. Heirs will need to manage withdrawals carefully to avoid both penalties and the '10-year tax squeeze,' which occurs when larger withdrawals are required in later years due to previous skipped distributions.
Starting in 2025, certain heirs with inherited individual retirement accounts must take required withdrawals every year or face an IRS penalty.
But some heirs may consider withdrawal timing to avoid the "10-year tax squeeze," according to certified financial planner Edward Jastrem at Heritage Financial Services."The big change is the IRS is enforcing penalties for missed required distributions," said certified financial planner Judson Meinhart, director of financial planning at Modera Wealth Management in Winston-Salem, North Carolina.
The rule applies to heirs who are not a spouse, minor child, disabled, chronically ill or certain trusts — and the yearly withdrawals apply if the original IRA owner had reached their RMD age before death.
INHERITED IRA REQUIRED MINIMUM DISTRIBUTION (RMD) TAX PENALTY 10-YEAR RULE WITHDRAWAL TIMING
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