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Yahoo
6 days ago
- Business
- Yahoo
Ask an Advisor: Does the 10-Year Rule Apply to the IRA I Inherited Years Ago?
I inherited an IRA from an aunt in 2009 and have been receiving the RMD each year since 2010. If the 10-year rule went into effect in 2019, how does it affect my inherited IRA from that point forward? Does that mean I have to draw it down to zero by 2029? If so, can any of it be moved to my personal IRA without penalty? – Ken I'm happy to tell you that you are completely exempt from the 10-year rule. Since it was not in effect when you inherited your IRA in 2009, it simply does not apply to you. As a result, you are not required to withdraw all of the the money in your inherited IRA by 2029. A financial advisor can help you manage inherited retirement accounts and other windfalls. today. What Is the 10-Year Rule? SmartAsset and Yahoo Finance LLC may earn commission or revenue through links in the content below. The so-called "10-year rule1" requires most non-spouse beneficiaries of inherited IRAs withdraw all the funds from the account by the end of the 10th year after the original account owner's death. This rule was created as part of the SECURE Act of 2019 and went into effect on Jan. 1, 2020. For example, say that a woman inherited an IRA from her uncle in 2021. Because she's a non-spouse beneficiary, she must follow the 10-year rule. That means she has until the end of 2031 to fully withdraw the account balance, regardless of her age or retirement status. Before this rule was created, beneficiaries were generally allowed to 'stretch' required minimum distributions (RMDs) over their own life expectancy. This strategy was aptly known as the stretch IRA. There were several reasons someone may have wanted to do this. For one, it allowed the inherited account to grow tax-deferred for decades. Many beneficiaries also chose this approach for tax management, especially when inheriting large IRAs. By spreading distributions over many years, they could minimize annual tax liability and possibly avoid pushing into higher tax brackets. Congress enacted the 10-year rule to eliminate stretch IRAs for most beneficiaries. This change was intended to discourage the use of inherited IRAs as long-term wealth transfer vehicles and to accelerate tax revenue by requiring faster distributions. (A financial advisor can help you manage an inheritance and navigate RMD rules related to an inherited retirement account.) Who Does the 10-Year Rule Apply to? This rule applies to most non-spouse beneficiaries who inherit an IRA in 2020 or after, with a few exceptions. The 10-year rule does not automatically apply to beneficiaries who are: Surviving spouses Minor children Disabled or chronically ill Not more than 10 years younger than the deceased Although it doesn't apply specifically to your situation here, there is a consideration regarding minor children that is similar to the nature of your question. Although they are not required to withdraw the funds within 10 years, this is only until they reach the age of 21. Once they turn 21, the 10-year rule applies and the clock starts. Again, it doesn't apply to you simply because you inherited your IRA before the law that created the rule was established. You are grandfathered in. You can continue to take RMDs based on your own life expectancy. (If she died on or after he required beginning date (RBD), your distributions are based on the longer of your own life expectancy or her remaining life expectancy when she died2.) (A financial advisor can help you make sense of the constellation of rules and regulations associated with retirement accounts, so you aren't subject to costly penalties.) Rolling an Inherited IRA into Your Own I want to separately address the question about whether or not you can roll an inherited IRA into your own IRA. Only surviving spouses have this option. Otherwise, you must keep the account as an inherited IRA, which comes with different rules and restrictions. This restriction applies regardless of whether the IRA was inherited before or after the SECURE Act took effect in 2020. Unlike a traditional IRA you own, an inherited IRA cannot accept new contributions, and you must follow required distribution rules based on your relationship to the deceased and the year of death. The rule exists to prevent indefinite tax deferral. Without it, beneficiaries could keep rolling inherited IRAs into their own accounts, potentially allowing families to delay required distributions and the associated taxes for multiple generations. (And if you have more questions related to inherited IRAs and whether SECURE Act changes impact your situation, speak with a financial advisor.) Bottom Line Since you inherited your aunt's IRA before the SECURE Act of 2019 went into effect, you are not subject to the 10-year rule. In other words, you did not have to deplete the account within 10 years of her death. You are also not required to deplete the account within 10 years of the rule becoming effective. Instead, you'll likely continue to take annual distributions based on either your own life expectancy or your aunt's life expectancy when she died. Retirement Planning Tips A financial advisor can help tailor a retirement plan to specific goals, income sources and risk tolerance. Finding a financial advisor doesn't have to be hard. SmartAsset's free tool matches you with vetted financial advisors who serve your area, and you can have a free introductory call with your advisor matches to decide which one you feel is right for you. If you're ready to find an advisor who can help you achieve your financial goals, get started now. To build a realistic retirement plan, start by estimating your annual expenses in today's dollars. Consider housing (including potential downsizing), food, healthcare premiums and out-of-pocket costs, travel and discretionary spending. Then, total your expected income sources-such as Social Security, 401(k) withdrawals, IRAs, annuities or rental income-and compare the two. This can help identify whether your current savings trajectory is on track or if you'll need to adjust contributions or spending expectations. Photo credit: © of Brandon Renfro, © © "Publication 590-B (2024), Distributions from Individual Retirement Arrangements (IRAs) | Internal Revenue Service." Home, Accessed 28 July 2025. ︎ "Retirement Topics – Beneficiary | Internal Revenue Service." Home, Accessed 28 July 2025. ︎ The post Ask an Advisor: Does the 10-Year Rule Apply to the IRA I Inherited Years Ago? appeared first on SmartReads by SmartAsset. Error in retrieving data Sign in to access your portfolio Error in retrieving data Error in retrieving data Error in retrieving data Error in retrieving data
Forbes
27-07-2025
- Business
- Forbes
How The Big Beautiful Bill Changed 529 Plans For The Better
University student, woman and outdoor for graduation with memory, smile or thinking or achievement ... More at campus. Girl, Japanese person and graduate with memory, decision or choice for future at college We've been saving into a 529 plan quite aggressively since the birth of our first child over ten years ago. As we had more kids, we continued to make these contributions because you can always change the beneficiary of a 529 plan without penalty. If our first child didn't end up needing it, our backup plan was to change the beneficiary to our second. With how much college costs these days, and will likely increase in the next decade, chances are our 529 plans were going to be emptied. If you don't have four kids, the idea of putting too much into a 529 plan is a big risk. A good risk but a big one nonetheless. But when the SECURE Act 2.0 was signed into law, it changed everything. There's now no risk to funding a 529 plan. 529 Plans Can Be Rolled into Roth IRAs The big headline change was that, subject to state laws, you can now roll over up to $35,000 of unused 529 plan funds into a Roth IRA for the beneficiary. There is no tax and no penalty if you follow certain conditions: This means you can contribute more into a 529 plan knowing that $35,000 of unused funds could eventually be moved into a Roth IRA. 529 Plans Are More Versatile Than I Remembered The ability to rollover unused 529 plan funds was the only major change in SECURE Act 2.0, there were additional changes to 529 plans that you may have missed. There were three major changes by SECURE Act back in 2019 and the Tax Cuts and Jobs Act of 2017. 529 Plans can now be used to cover K-12 tuition of up to $10,000 per student as long as your state allows it. Previously, you couldn't use it for K-12. The SECURE Act of 2019 made it possible for you to use 529 plan funds to pay for apprenticeship program expenses, with no cap, as long as the program is listed with the U.S. Department of Labor. This includes fees, books, supplies, and any other required equipment. Finally, you can now use up to $10,000 of 529 plan funds to pay for qualified student loans per person. The $10,000 is a lifetime limit that applies to the beneficiary and each of their siblings. Also, the interest paid with 529 plan funds isn't tax deductible. With the cost of college higher than ever, increasing the versatility of 529 plans helps more people pay for college.
Newsweek
09-07-2025
- Business
- Newsweek
Americans Want Their 401(k) Plans to Change
Based on facts, either observed and verified firsthand by the reporter, or reported and verified from knowledgeable sources. Newsweek AI is in beta. Translations may contain inaccuracies—please refer to the original content. Americans are looking for options beyond the traditional 401(k) for funding their retirement, a new survey has found. A PlanAdviser poll conducted in May among 2,153 401(k) plan holders showed a growing concern among American workers: Their 401(k) plans may not be enough to carry them through retirement. An overwhelming 93 percent said it was important to have the option to convert their savings into guaranteed monthly income, and 67 percent said they would feel more confident about retirement if their plan included that option. The results are consistent with other research that shows the American retirement landscape is due a change. A plethora of studies and polls have found that U.S. workers are becoming increasingly concerned about their ability to see themselves financially through their post-working years. A recent study by Transamerica Center for Retirement Studies found that almost seven in 10 workers—69 percent—said they could work until retirement age and still not save enough to meet their needs. The Allianz 2025 Annual Retirement Study found that 64 percent of Americans were more scared of running out of money in retirement than they were of dying. The stress of wondering how they will fare financially later in life is fueling Americans' growing interest in guaranteed income. For many, a 401(k) account balance, even one that looks substantial, is no longer reassuring in an economy marked by volatility and inflation. A composite image created by Newsweek. A composite image created by Newsweek. Photo-illustration by Newsweek/Getty/Canva While a 401(k) allows a plan holder to invest over time and make withdrawals in retirement, it is a far cry from the defined pension plans that have dwindled over the past 40 years. Those traditionally provided steady, guaranteed income during retirement. These days, guaranteed income streams often come in the form of annuities, which are plans bought from insurance companies. "Who wouldn't feel more confident knowing they'll receive a steady check every month for the rest of their life?" Joseph Patrick Roop, the president and CEO at Belmont Capital Advisors, told Newsweek. "The fact that 93 percent of survey participants want the option to convert part of their 401(k) into guaranteed monthly income says it all." The issue, according to Roop, is largely structural. While 401(k)s give employees freedom and flexibility, they were never designed to provide lifelong income. "They give employees choices, but they also shift the burden of creating retirement income from the employer to the individual," he said. "That's precisely why employers love 401(k)s. They can contribute a match, but they're off the hook for the long-term promises of a pension." The SECURE Act and SECURE 2.0 Act, the latter of which expands automatic enrollment in retirement plans, have helped to introduce guaranteed income options into some retirement plans. However, Roop said, "very few employers have adopted them," and that broader flexibility is needed. "Allow any plan participant to roll over some or all of their 401(k) into an annuity of their choice that provides lifetime income," he continued, adding, "Just because an annuity is included in a company plan doesn't mean it's the right fit for every person in the company." Aaron Cirksena, the founder and CEO of MDRN Capital, agreed that the desire for guaranteed income is naturally rooted in worries about financial longevity. "Retirees aren't just worried about having enough money. They're worried about when that money will run out," he told Newsweek. "A guaranteed paycheck in retirement mimics the comfort of a salary." This trend isn't necessarily a rejection of the 401(k) model, but rather a realization that it has limits. "It's less about a lack of faith and more about missing pieces," Cirksena continued. "Most people don't want to ditch their 401(k), but they're realizing it's not a complete solution." Christina Muller, a licensed workplace mental health expert, suggested that this craving for security goes beyond finances, and that people naturally "crave predictability and stability, and our brains need these for psychological safety." "The 401(k) system can feel like rolling the dice with your future, adding undue financial stress for some," she told Newsweek. "People want structure and what feels like an 'insurance plan' for their hard-earned money and future." She added that Gen X, many of whom are nearing retirement after experiencing multiple economic downturns, are especially likely to prioritize safety and consistency in their planning. Almost 60 percent of Gen Z and millennials in the survey said they would be more likely to participate in their workplace retirement plan if guaranteed income options were included. "Reducing the financial and mental load for later in life will help stave off this 'invisible interest' of stress and uncertainty that compounds over time," she continued. As inflation and market instability continue to cast doubt on traditional saving strategies, demand for stable, reliable income in retirement is likely to grow. Cirksena said: "Even folks with solid savings are starting to think, 'What if this doesn't stretch as far as I thought?' That fear is driving the push for income that's stable, reliable, and protected from market swings."
Yahoo
25-05-2025
- Business
- Yahoo
The lowdown on inherited IRAs
Dear Liz: I inherited my mother's Roth IRA when she died in 2015 and have been taking yearly required minimum distributions based on my age. My spouse is my primary beneficiary on this inherited Roth IRA. What happens if I pass away before she does? Can she just roll it over into her existing Roth IRA, as is generally permitted for spousal IRA inheritance? Or are there additional limits imposed because it becomes a "doubly inherited" Roth IRA? Answer: The SECURE Act largely eliminated the so-called stretch IRA that allowed non-spouse beneficiaries to take distributions over their lifetimes. IRAs inherited on or after Jan. 1, 2020, must typically be drained within 10 years. That likely would be the case for your wife. Special rules allow a spouse to treat an inherited IRA as their own, but only when they inherit from the original IRA owner, says Mark Luscombe, principal analyst for Wolters Kluwer Tax & Accounting. There are a few exceptions. Your wife may be able to spread the distributions over her lifetime if she is disabled or chronically ill, for example. If that's not the case, she's back to draining the account within 10 years. Many inherited IRAs require annual distributions. Since this is a Roth IRA, however, the original owner would not have been required to start distributions. Therefore, the spouse of the inherited Roth IRA beneficiary does not have a requirement to distribute annually over the 10-year period but may wait until the end of the 10-year period to do the full distribution, Luscombe says. Dear Liz: I am in my late 50s, married and woefully unprepared financially for my later years. I was a stay-at-home mom for many years. I now work almost full time but my employer has no 401(k) or profit sharing or really any benefits at all. I just started putting $8,000 (the catch-up amount) into my Roth IRA. What else can I do now to make up for lost time? Answer: You can't really make up for the decades of compounded returns you missed by not investing earlier. But you can make some smart decisions now for a more comfortable retirement. Your most important decision likely will be how you and your spouse claim Social Security. Your spouse almost certainly should wait to claim until age 70 to maximize their lifetime benefit and to lock in the highest possible survivor benefit. If you outlive your spouse, this benefit could comprise the bulk of your income. Consider reading 'Get What's Yours,' a book about Social Security claiming strategies by Laurence J. Kotlikoff and Philip Moeller. Just make sure to get the updated version that was published in 2016, since earlier versions refer to strategies that Congress eliminated. Delaying retirement is another powerful way to compensate for a late start, since you'll have more years to work and save. Consider finding an employer who will help you secure your future by providing a 401(k) with a generous match. You'll be able to contribute substantially more to a workplace retirement plan than you would to a Roth. You and your spouse should consider hiring a fee-only financial planner to review your situation and offer customized advice. Dear Liz: You recently responded to an elderly couple who planned to move into assisted living, but were concerned about capital gains taxes on the sale of their home. You suggested an installment sale or renting out the home as possible options. While not for everyone, another possibility is a home loan or a reverse mortgage to cash out tax free. Answer: Reverse mortgages have to be repaid if the borrowers die, sell or permanently move out of their homes. If one of the spouses planned to stay in the home, a reverse mortgage might work, but not if both plan to move to assisted living. A home equity loan or home equity line of credit might be options if the couple have good credit, sufficient income to make the payments and a cooperative lender. A tax pro or a fee-only financial planner could help them assess their options. Liz Weston, Certified Financial Planner®, is a personal finance columnist. Questions may be sent to her at 3940 Laurel Canyon, No. 238, Studio City, CA 91604, or by using the "Contact" form at Sign up for our Wide Shot newsletter to get the latest entertainment business news, analysis and insights. This story originally appeared in Los Angeles Times.
Los Angeles Times
25-05-2025
- Business
- Los Angeles Times
The lowdown on inherited IRAs
Dear Liz: I inherited my mother's Roth IRA when she died in 2015 and have been taking yearly required minimum distributions based on my age. My spouse is my primary beneficiary on this inherited Roth IRA. What happens if I pass away before she does? Can she just roll it over into her existing Roth IRA, as is generally permitted for spousal IRA inheritance? Or are there additional limits imposed because it becomes a 'doubly inherited' Roth IRA? Answer: The SECURE Act largely eliminated the so-called stretch IRA that allowed non-spouse beneficiaries to take distributions over their lifetimes. IRAs inherited on or after Jan. 1, 2020, must typically be drained within 10 years. That likely would be the case for your wife. Special rules allow a spouse to treat an inherited IRA as their own, but only when they inherit from the original IRA owner, says Mark Luscombe, principal analyst for Wolters Kluwer Tax & Accounting. There are a few exceptions. Your wife may be able to spread the distributions over her lifetime if she is disabled or chronically ill, for example. If that's not the case, she's back to draining the account within 10 years. Many inherited IRAs require annual distributions. Since this is a Roth IRA, however, the original owner would not have been required to start distributions. Therefore, the spouse of the inherited Roth IRA beneficiary does not have a requirement to distribute annually over the 10-year period but may wait until the end of the 10-year period to do the full distribution, Luscombe says. Dear Liz: I am in my late 50s, married and woefully unprepared financially for my later years. I was a stay-at-home mom for many years. I now work almost full time but my employer has no 401(k) or profit sharing or really any benefits at all. I just started putting $8,000 (the catch-up amount) into my Roth IRA. What else can I do now to make up for lost time? Answer: You can't really make up for the decades of compounded returns you missed by not investing earlier. But you can make some smart decisions now for a more comfortable retirement. Your most important decision likely will be how you and your spouse claim Social Security. Your spouse almost certainly should wait to claim until age 70 to maximize their lifetime benefit and to lock in the highest possible survivor benefit. If you outlive your spouse, this benefit could comprise the bulk of your income. Consider reading 'Get What's Yours,' a book about Social Security claiming strategies by Laurence J. Kotlikoff and Philip Moeller. Just make sure to get the updated version that was published in 2016, since earlier versions refer to strategies that Congress eliminated. Delaying retirement is another powerful way to compensate for a late start, since you'll have more years to work and save. Consider finding an employer who will help you secure your future by providing a 401(k) with a generous match. You'll be able to contribute substantially more to a workplace retirement plan than you would to a Roth. You and your spouse should consider hiring a fee-only financial planner to review your situation and offer customized advice. Dear Liz: You recently responded to an elderly couple who planned to move into assisted living, but were concerned about capital gains taxes on the sale of their home. You suggested an installment sale or renting out the home as possible options. While not for everyone, another possibility is a home loan or a reverse mortgage to cash out tax free. Answer: Reverse mortgages have to be repaid if the borrowers die, sell or permanently move out of their homes. If one of the spouses planned to stay in the home, a reverse mortgage might work, but not if both plan to move to assisted living. A home equity loan or home equity line of credit might be options if the couple have good credit, sufficient income to make the payments and a cooperative lender. A tax pro or a fee-only financial planner could help them assess their options. Liz Weston, Certified Financial Planner®, is a personal finance columnist. Questions may be sent to her at 3940 Laurel Canyon, No. 238, Studio City, CA 91604, or by using the 'Contact' form at
