How do I calculate my RMD on an inherited IRA?
Receiving an inherited IRA can be a complex situation, especially when it comes to understanding the required minimum distributions (RMDs). Calculating your RMD on an inherited IRA is crucial to ensure compliance with tax regulations and to avoid penalties. In this article, we will guide you through the process of calculating your RMD on an inherited IRA.
Firstly, it’s important to determine the type of inherited IRA you have. There are two main types: a spousal IRA and a non-spousal IRA. The calculation method for each type is different.
For a spousal IRA, the RMD calculation is straightforward. You must take the total balance of the IRA as of December 31st of the year before the year of inheritance and divide it by the life expectancy factor provided by the IRS. The life expectancy factor can be found in the Single Life Expectancy Table in IRS Publication 590-B.
For example, if your inherited IRA balance is $100,000 and the life expectancy factor is 27.4 years, your RMD would be $3,636.51 ($100,000 / 27.4).
On the other hand, for a non-spousal IRA, the calculation is a bit more complicated. You will need to use the IRS Single Life Expectancy Table and apply the following steps:
1. Determine the year of death: If the original IRA owner passed away before the year of inheritance, use the year of death. If they passed away in the same year you inherited the IRA, use the year of death plus one.
2. Calculate the life expectancy factor: Find the life expectancy factor for the year of death in the Single Life Expectancy Table.
3. Calculate the RMD: Divide the total balance of the IRA as of December 31st of the year before the year of inheritance by the life expectancy factor.
For instance, if the original IRA owner passed away in 2020, and you inherited the IRA in 2021, you would use the 2020 life expectancy factor. If the IRA balance is $150,000 and the life expectancy factor is 25.6 years, your RMD would be $5,846.15 ($150,000 / 25.6).
It’s essential to note that the first RMD from an inherited IRA must be taken by the end of the year following the year of inheritance. For subsequent years, the RMD must be taken by December 31st of each year.
In conclusion, calculating your RMD on an inherited IRA can be a challenging task, but by following these steps and understanding the type of inherited IRA you have, you can ensure compliance with tax regulations. If you’re still unsure, it’s always a good idea to consult with a financial advisor or tax professional to help you navigate this process.
