I was reading about inherited Traditional IRAs because they are so thrilling. No, not really. They are about as thrilling as watching water boil, but I inherited a small IRA from my mother. There is a lot of information on the internet about inherited IRAs. Usually, the problem with the internet is that half the information is outdated and the other half is just false.

• https://www.irs.gov/retirement-plans/plan-participant-employee/retirement-topics-beneficiary
• https://www.irs.gov/retirement-plans/plan-participant-employee/retirement-topics-required-minimum-distributions-rmds

Reading about inherited IRAs has been a fairly unique experience. The source you would expect to have detailed and useful, the IRS website, is very anemic. The investment firms and tax firms have more detailed and useful information. Every time I look at a different Traditional IRA article, I learn something that I was missing from all the others. It feels like I am trying to assemble a 1000 piece Traditional IRA puzzle, and I am not sure what the picture is supposed to look like.

After writing about 25 pages on inherited IRAs, I just learned two things that break my article. Fortunately, I do not think it will be too hard to fix. I need to do some verification, but the two things I read make sense.

The first one is minor, but it is annoying. Once you reach your required beginning date, you have to begin taking required minimum distributions (RMDs). While this does not thrill me, it is a better solution than just taxing the entire account, when you die. In 2024, your required beginning date appears to the date that you turn 72 years old. In that year, you have to start taking required minimum distributions. Well, unless you want to defer the first RMD up until April 1st in the year your turn 73. If your birthday is at the end of the year, you can push it back 4 months.

Well, sort of. Not really. First, you can take your RMD in the same year your turn 72, before your required beginning date. It still counts as the RMD for that year. Second, you have to take your second RMD by Dec 31 of the year your turn 73. Third, you get taxed for your RMD in the year you take the distribution. In other words, you get taxed for two distributions in the year you turn 73. If you saved 5% of an average family income in 401(k) plans for 40+ years and rolled the 401(k) into an IRA, you might have $1 million or more in your IRA. Your 72 year RMD would be about $36,500, and your 73 year RMD would be about $37,500. You would end up paying almost $3,000 more in federal taxes. That sounds like something that is only good for the IRS.

To be fair, there is a case where this might be useful. If you work until 72, you could avoid taking your first RMD in the same year that you had significant wage income. I did not see anything about whether you could split the first RMD between the year you turned 72 and 73.

The second one is a little more significant. As mentioned above, Traditional IRAs have a concept of required minimum distributions. The government wants their tax money from your tax-deferred account. At age of 72 (in 2024), you are required to distribute funds and pay taxes, or the government penalizes you 50% of what you should have removed. Yeah. Do not forget to distribute those RMDs.

The way this works is that the IRS has life expectancy tables. These tables contain the expected remaining lifespan at different ages at the time the tables were updated. Yeah. A bit morbid, but still interesting. The Uniform Lifetime Table represents the expected combined remaining life expectancy of an individual and a spouse 10 years younger than them. Oddly, you use this table, even if you are single. If your spouse is more than 10 years younger, you get to use the confusing Joint Life and Last Survivor Expectancy Table. (The Joint Life table is not used to determine the remaining lifespan of Marijuana smokers.) In the Joint Life table you have to look up the ages of both individuals to find the combined life expectancy.

Most people should use the Uniform Lifetime Table to calculate the required minimum distribution (RMD). The RMD is calculated by taking the account balance on December 31st of the previous year and dividing it by the life expectancy for the age of the account holder in the current year. For example, a single person with a $50,000 Traditional IRA on Dec 31st of the previous year would have a RMD of:

• $1,960.78 (= $50,000.00 ÷ 25.5) at 74
• $1,952.81 (= $48,039.22 ÷ 24.6) at 75
• etc.

If you are a Cougar or Manther, you would use the Joint Life and Last Survivor Expectancy Table. The RMD is calculated by taking the account balance on December 31st of the previous year and dividing it by the joint life expectancy for the ages of the account holder and spouse in the current year. For example, a couple with a $50,000 Traditional IRA on Dec 31st of the previous year would have a RMD of:

• $1,501.50 (= $50,000.00 ÷ 33.3) at 74 and 54
• $1,496.87 (= $48,498.50 ÷ 32.4) at 75 and 55
• etc.

When you inherit an a Traditional IRA, one of the options that can be available is

Take distributions based on their own life expectancy

You would think that the Single Life Expectancy Table would be used the same way to calculate RMDs for the inheritor. Like me, you would be wrong. The life expectancy value is calculated once at the time of death/inheritance, based on someone’s age on their birthday in the year after the death of the account holder. The RMD is the account value divided by the life expectancy value at that age. The value decreases by 1 every year until it reaches zero, and the account must be empty. This seems like an arbitrary hard right turn because the RMD is calculated completely different by the account owner. This makes sense in that it functions more like the 10-year rule with a fixed predetermined time limit. Mostly, It make sense that the IRS is forcing more distributions from inherited IRAs to reap the taxes.

For example, a spouse inherits a $50,000 IRA at the age of 64 from a 74 year old spouse. The RMDs would be:

• $1,960.78 (= $50,000.00 ÷ 25.5) at 63 for the current year RMD of the 74 year old account owner. (The single life expectancy, next year at 64 years old, for the spouse is looked up as 23.7.)
• $2,116.27 (= $48,039.22 ÷ 22.7) at 65 because 23.7 – 1 = 22.7
• $2,116.26 (= $45,922.95 ÷ 21.7) at 66 because 22.7 – 1 = 21.7
• …
• $2,116.26 (= $3597.65 ÷ 1.7) at 87 because 2.7 – 1 = 1.7
• $2,116.27 (= $1482.39 ÷ 0.7) at 88 because 1.7 – 1 = 0.7. Account is emptied.

It is probably the most elegant and thought out thing I have run across dealing with taxes. It is too bad that is not well documented, outside the tax worksheets.