Can You Process A Qualified Charitable Distribution (QCD) From an Inherited IRA?
Qualified Charitable Distributions are an advanced tax strategy used by individuals who are age 70½ or older who typically make annual contributions to their church, charity, or other not-for-profit organizations. QCDs allow individuals who have pre-tax IRAs to send money directly from their IRA to their charity of choice, and they avoid having to pay tax on those distributions. However, a client recently asked an excellent question:
“Can you process a qualified charitable distribution from an Inherited IRA? If yes, does that QCD also count toward the annual RMD requirement?”
What Happens When A Minor Child Inherits A Retirement Account?
There are special non spouse beneficiary rules that apply to minor children when they inherit retirement accounts. The individual that is assigned is the custodian of the child, we'll need to assist them in navigating the distribution strategy and tax strategy surrounding they're inherited IRA or 401(k) account. Not being aware of the rules can lead to IRS tax penalties for failure to take requirement minimum distributions from the account each year.
What Happens When You Inherit an Already Inherited IRA?
When you are the successor beneficiary of an Inherited IRA the rules are very complex.
Beneficiaries May Need To Take An RMD From A Decedent’s IRA In The Year They Pass Away
A common mistake that beneficiaries of retirement accounts make when they inherit either a Traditional IRA or 401(k) account is not knowing that if the decedent was required to take an RMD (required minimum distribution) for the year but did not distribute the full amount before they passed, the beneficiaries are then required to withdrawal that amount from the retirement account prior to December 31st of the year they passed away. Not taking the RMDs prior to December 31st could trigger IRS penalties unless an exception applies.
The Final Rules For Non-spouse Beneficiary Inherited IRAs Has Been Released: The 10-Year Rule, Annual RMD Requirement, Tax Strategies, New 401(k) Roth Rules, and More…….
In July 2024, the IRS released its long-awaited final regulations clarifying the annual RMD (required minimum distribution) rules for non-spouse beneficiaries of retirement accounts that are subject to the new 10-year rule. But like most IRS regulations, it’s anything but simple and straightforward.
2023 RMDs Waived for Non-spouse Beneficiaries Subject To The 10-Year Rule
There has been a lot of confusion surrounding the required minimum distribution (RMD) rules for non-spouse, beneficiaries that inherited IRAs and 401(k) accounts subject to the new 10 Year Rule. This has left many non-spouse beneficiaries questioning whether or not they are required to take an RMD from their inherited retirement account prior to December 31, 2023. Here is the timeline of events leading up to that answer
Secure Act 2.0: RMD Start Age Pushed Back to 73 Starting in 2023
On December 23, 2022, Congress passed the Secure Act 2.0, which moved the required minimum distribution (RMD) age from the current age of 72 out to age 73 starting in 2023. They also went one step further and included in the new law bill an automatic increase in the RMD beginning in 2033, extending the RMD start age to 75.
Removing Excess Contributions From A Roth IRA
If you made the mistake of contributing too much to your Roth IRA, you have to go through the process of pulling the excess contributions back out of the Roth IRA. The could be IRS taxes and penalties involved but it’s important to understand your options.
