Inherited an IRA? What To Know For 2025

THE FINANCIAL COMMUTE

On this week’s episode of THE FINANCIAL COMMUTE, host Chris Galeski welcomes Wealth Advisor Patrice Bening to discuss how to strategize distributions when inheriting IRAs, complexities introduced by Secure Act changes in 2020, and what to know for 2025.

Here are some key takeaways from their conversation:

- In 2020, Secure Act 2.0 made it so non-spouse beneficiaries must fully deplete inherited retirement accounts (traditional or Roth IRAs) within 10 years, instead of stretching distributions over their lifetimes.

- Starting in 2025, individuals who inherited IRAs after January 1, 2020, must begin taking annual RMDs within the 10-year window.

- Beneficiaries need to consider their income levels, tax brackets, and financial plans when deciding how much to withdraw annually to minimize taxes and maximize financial benefits.

- Spouses have unique flexibility, such as rolling an inherited IRA into their own account to delay RMDs or treating it as an inherited IRA to access funds penalty-free.

- Minors who inherit IRAs can use their life expectancy for withdrawals until turning 18, after which the 10-year rule applies. Withdrawals can impact eligibility for student aid or repayment plans.

- Individuals aged 70.5 or older can make qualified charitable distributions (QCDs) directly from inherited IRAs to reduce taxable income while fulfilling RMD requirements.

- Failing to take an RMD incurs a 25% penalty, which can be reduced to 10% if corrected within two years. Beneficiaries must stay on top of annual distribution requirements.