Where this gets interesting is if you inherit a large taxable account (say, 1M) and you are close to retirement. Prior to the new rule, you might have been better taking NOTHING until you retire a few years later and then start taking distributions when you have no other income. But now you are stuck taking RMDs and you bound to have all of that money taxed in a high bracket if you are a high earner due to your job. Problem for the privileged, I know. But, still...
With a taxable brokerage account you receive a stepped up cost basis based on the date of death. I know because I inherited both a taxable brokerage account and a traditional IRA with the 10 year rule since I inherited from a brother 18 years older than me in 2020.
@@CardinalAdvisors but WHY does that make sense? If the government is getting nothing from you liquidating the account then why should you have to touch it at all or incur a 50% penalty? Its ridiculous. Im sure many people dont know about this and get nailed because of it.
The new rule is horrible!!! Old rule: I inherited an IRA in 2017. I've taken out around $70,000 in RMDs over the past 6 years. However, the account balance is nearly the same today as it was in 2017 due to cost appreciation and dividends reinvested. Therefore the RMDs I've taken is like passive income, while I continue to manage and invest within my inherited IRA. I'll have annual passive income for the rest of my life. New Rule 2020 forward: If you inherited an IRA 2020 forward, you have to exhaust (withdrawal) all of the IRA within 10 years. This new rule hurts generational wealth that you can pass on to future generations. I'll never understand why this was done under a Republican administration. I suppose they wanted more tax dollars, too.
Yeah. Not best for passing on wealth. If a person or his spouse is employed you can still defer part of the taxes. This assumes your aren't maximizing your 401K and/or private IRA. You cannot rollover the inherited IRA into your retirement accounts, but that doesn't stop you from indirectly moving money from different buckets to get more into your retirement. So if a married couple both have 401K plans they can withdraw funds from the inherited IRA and increase their contributions to the Maximum allowed into their 401K. Just put the inherited money in a high yield savings and move it into your bank every pay period to offset the additional 401K contribution amount (reduction in pay). Don't forget HSAs if you have one. If you have more to take out then schedule transfers into a traditional IRA or set one up and max it out. And again transfer that amount from your new high yield savings into your checking to offset the amount moved from checking into the IRA. Spouse doesn't work? Well provided you work and you earn enough wages you can fund their IRA every year. Just remember to set your kids up as beneficiaries to your retirement plans so they can do all this hoop jumping when you and your spouse dies. The new law allows your kids, nieces and nephews to take out any unused 529 money ($37K lifetime limit?) 15 years after it is setup that can be applied to a Roth IRA maximum. If they're going to college then put a little more in their 529 so they can rollover the maximum every year into their Roth while they are working. So that is 6 years or less they don't have to contribute to their Roth IRA and can put more of their own money in a Roth 401K so their kids wont have to do this shuffle. Still have money left in the inherited IRA? That's a lot of wealth your parent(s) accumulated. Other options: Pay off your high interest debts and put aside or set the withholding when your take it out of the inherited IRA. Pay off your mortgage. Without a mortgage you can give that money to your kids or help them by paying off their mortgage or high interest loans. They can then build their wealth. Again, you do pay taxes but the interest saved is tax free and it may be more than the taxes paid. It helps them by freeing up cash so they can build their wealth. Just keep it under the annual gift limit for your child and their spouse. Buy I-Bonds $10K per individual per year. The interest adjusts for inflation so it won't grow , but they have a 30 year term. Taxes aren't paid until they are redeemed. They aren't sold on the market, but through Treasury direct so they don't suffer from interest rate fluctuations (when you need to sell the bond you get back all of your principal plus taxable inflation interest). They aren't the best in yield, but can be redeemed without penalty after 5 years. Consult your advisor on whether or not buying them for kids or relatives counts towards annual gift allowance. If you still have a fund balance after all of that then your parents were awesome! Cash it out when you can and try to emulate that awesomeness with help from professional advisors like Cardinal Advisors.
@@charlesbyrneShowComments4all I retired in 2020 at 54. I don't carry any debt and my primary residence and rental properties are free and clear. My passive income is from my rentals, moved 80% of my cash into SWVXX and receive a nice monthly interest payment, and take an annual RMD from my inherited IRA. Between the 3 it creates around $85k a year in income. I have several investment accounts that I leave alone and let time do the rest without selling any of my stocks and mutual funds. However, I haven't touched my 401(k) since I retired. Due to cost appreciation, dividends & capital gains dividends reinvested, it has increased in value over the last 3 years. I'll probably start taking withdrawals at 59 1/2 to add to my income and stay in pace with inflation. Should I keep my 401(k) where it is, or roll it into an IRA? Also, I created a revocable trust for all my properties, and of course, named beneficiaries to all my investment accounts. Thanks!
IF I had a $1M in a ROTH IRA, I have no spouse or children but 2 nephews and they have 8 kids, total of 10 beneficiaries. I can split it up $100k for each of them..They fall into the 10 year rule [in the future, 8 sm kids right now are 6 months to 5 yrs old, I'm 60]. Say I live past they reach 21 and they split the 10 years by withdrawing $10k each year tax free[ROTH]....My question-- is it that simple -"only 10K a yr for 10 yrs" OR say the ROTH IRA gets dividends + 8% avg capital appreciation=10%. Will they need to take out more each year like 15k?? so they will have withdrawn all $100k+ "interest" in the 10 years??....Thanks
@@CardinalAdvisors I hope so, remembering at 73 you have to do RMDs is alot different than remembering 10 yrs after someone dies you have to close an account or be subject to what could be hundreds of thousands of dollars in fines.
If your sister in law was the owner of an Ira passed to your wife by beneficiary and your wife less than 10 years younger than her sister, your wife is an eligible designated beneficiary. Your wife can stretch the RMDs over your wife’s life expectancy. We can offer an annuity which will send your wife an equal check every year and ends at her life expectancy.
For Roth 403b & Roth IRAs, etc. which don’t pay taxes to the IRS, why does the 10 year rule apply? How do the IRS even track distributions on non-taxed Roths (to include Roth 403b RMDs for retirement)?
The beneficiary enjoys tax free earnings for 10 years if they elect to leave the money inside the Roth. The IRS does a poor job of policing IRAs. That could change
Great information, as always. If you have substantial IRAs and have the ability to do Roth conversions, you are really providing huge benefits to your future heirs.
True, that's how they're set up, so it does apply just because it does. And that should change... How does the IRS track that you have a Roth? Does the IRS require you to disclose something with your annual documentation for not-taxable accounts when you pay any taxes due on taxable income, or are the investment companies disclosing that information annually?
Does this mean that sibling inheriting a 401K Roth or IRA Roth that within 10 years say 65 y/o of the deceased that is 70 or older only has to take RMDs based on their age and could strech the RMD for more than 10 years if they lived to be 85 a 20 year stretch. Even better could they wait 10 years and then begin to strech it at age 75 based on their RMD chart.
What does this have to do with forgery proof counterfeit free arbiter interdiction triple quit claim title deed registration traditional family lawyers permission validation interdiction Trust Schedule A to Z total familiarity lawyers backing traditional family lawyers interdiction trust referee advocate administration?
@@MadOldMan-ck5wq What does this have to do with forgery proof counterfeit free arbiter interdiction triple quit claim title deed registration traditional family lawyers permission validation interdiction Trust Schedule A to Z total familiarity lawyers backing traditional family lawyers interdiction trust referee advocate administration?
Best explanation I’ve found. Thank you!
Very clear and well explained - thanks!
Cardinal Investors, do you have an updated video in response to Notice 2024-35?
I love the way you organize your notes on the whiteboard.
What if you started taking IRAs earlier at 62 y/o does 10 year apply?
Very informative and helpful. Thank you for the video!
Where this gets interesting is if you inherit a large taxable account (say, 1M) and you are close to retirement. Prior to the new rule, you might have been better taking NOTHING until you retire a few years later and then start taking distributions when you have no other income. But now you are stuck taking RMDs and you bound to have all of that money taxed in a high bracket if you are a high earner due to your job. Problem for the privileged, I know. But, still...
With a taxable brokerage account you receive a stepped up cost basis based on the date of death. I know because I inherited both a taxable brokerage account and a traditional IRA with the 10 year rule since I inherited from a brother 18 years older than me in 2020.
WHY does this rule apply to ROTH IRAs where the government gets no taxes from it at all?
Roth IRAs grow tax free. The earnings are tax free. It is limited to 10 years after your death.
@@CardinalAdvisors but WHY does that make sense? If the government is getting nothing from you liquidating the account then why should you have to touch it at all or incur a 50% penalty? Its ridiculous. Im sure many people dont know about this and get nailed because of it.
oh i just realized after you liquidate it then its not longer an IRA and growing tax free. Got it thanks
The new rule is horrible!!!
Old rule: I inherited an IRA in 2017. I've taken out around $70,000 in RMDs over the past 6 years. However, the account balance is nearly the same today as it was in 2017 due to cost appreciation and dividends reinvested. Therefore the RMDs I've taken is like passive income, while I continue to manage and invest within my inherited IRA. I'll have annual passive income for the rest of my life.
New Rule 2020 forward: If you inherited an IRA 2020 forward, you have to exhaust (withdrawal) all of the IRA within 10 years. This new rule hurts generational wealth that you can pass on to future generations. I'll never understand why this was done under a Republican administration. I suppose they wanted more tax dollars, too.
Yeah. Not best for passing on wealth. If a person or his spouse is employed you can still defer part of the taxes. This assumes your aren't maximizing your 401K and/or private IRA. You cannot rollover the inherited IRA into your retirement accounts, but that doesn't stop you from indirectly moving money from different buckets to get more into your retirement.
So if a married couple both have 401K plans they can withdraw funds from the inherited IRA and increase their contributions to the Maximum allowed into their 401K. Just put the inherited money in a high yield savings and move it into your bank every pay period to offset the additional 401K contribution amount (reduction in pay). Don't forget HSAs if you have one. If you have more to take out then schedule transfers into a traditional IRA or set one up and max it out. And again transfer that amount from your new high yield savings into your checking to offset the amount moved from checking into the
IRA. Spouse doesn't work? Well provided you work and you earn enough wages you can fund their IRA every year. Just remember to set your kids up as beneficiaries to your retirement plans so they can do all this hoop jumping when you and your spouse dies.
The new law allows your kids, nieces and nephews to take out any unused 529 money ($37K lifetime limit?) 15 years after it is setup that can be applied to a Roth IRA maximum. If they're going to college then put a little more in their 529 so they can rollover the maximum every year into their Roth while they are working. So that is 6 years or less they don't have to contribute to their Roth IRA and can put more of their own money in a Roth 401K so their kids wont have to do this shuffle.
Still have money left in the inherited IRA? That's a lot of wealth your parent(s) accumulated. Other options:
Pay off your high interest debts and put aside or set the withholding when your take it out of the inherited IRA.
Pay off your mortgage. Without a mortgage you can give that money to your kids or help them by paying off their mortgage or high interest loans. They can then build their wealth. Again, you do pay taxes but the interest saved is tax free and it may be more than the taxes paid. It helps them by freeing up cash so they can build their wealth. Just keep it under the annual gift limit for your child and their spouse.
Buy I-Bonds $10K per individual per year. The interest adjusts for inflation so it won't grow , but they have a 30 year term. Taxes aren't paid until they are redeemed. They aren't sold on the market, but through Treasury direct so they don't suffer from interest rate fluctuations (when you need to sell the bond you get back all of your principal plus taxable inflation interest). They aren't the best in yield, but can be redeemed without penalty after 5 years. Consult your advisor on whether or not buying them for kids or relatives counts towards annual gift allowance.
If you still have a fund balance after all of that then your parents were awesome! Cash it out when you can and try to emulate that awesomeness with help from professional advisors like Cardinal Advisors.
@@charlesbyrneShowComments4all I retired in 2020 at 54. I don't carry any debt and my primary residence and rental properties are free and clear. My passive income is from my rentals, moved 80% of my cash into SWVXX and receive a nice monthly interest payment, and take an annual RMD from my inherited IRA. Between the 3 it creates around $85k a year in income. I have several investment accounts that I leave alone and let time do the rest without selling any of my stocks and mutual funds. However, I haven't touched my 401(k) since I retired. Due to cost appreciation, dividends & capital gains dividends reinvested, it has increased in value over the last 3 years. I'll probably start taking withdrawals at 59 1/2 to add to my income and stay in pace with inflation. Should I keep my 401(k) where it is, or roll it into an IRA? Also, I created a revocable trust for all my properties, and of course, named beneficiaries to all my investment accounts. Thanks!
IF I had a $1M in a ROTH IRA, I have no spouse or children but 2 nephews and they have 8 kids, total of 10 beneficiaries. I can split it up $100k for each of them..They fall into the 10 year rule [in the future, 8 sm kids right now are 6 months to 5 yrs old, I'm 60]. Say I live past they reach 21 and they split the 10 years by withdrawing $10k each year tax free[ROTH]....My question-- is it that simple -"only 10K a yr for 10 yrs" OR say the ROTH IRA gets dividends + 8% avg capital appreciation=10%. Will they need to take out more each year like 15k?? so they will have withdrawn all $100k+ "interest" in the 10 years??....Thanks
@1Mannco They only have to do an RMD year 1-9, they can take more, but in year 10 the account needs to be emptied.
Is the IRS required to notify someone thats close to the 10 years and the 50% penalty for not withdrawing funds?
The IRS doesn’t do any notification regarding RMDs. It’s pretty much the honor system. That could change.
@@CardinalAdvisors I hope so, remembering at 73 you have to do RMDs is alot different than remembering 10 yrs after someone dies you have to close an account or be subject to what could be hundreds of thousands of dollars in fines.
@@CardinalAdvisors I bet if you MISS your RMSs they notify you lol
What's the due date of taking the RMD - by December 31 of each year?
12/31 yes. The first RMD is due by April 15th of the following year
My wifes sister was only a few years older than my wife.How long can my wife wait before she has to take an RMD?.
If your sister in law was the owner of an Ira passed to your wife by beneficiary and your wife less than 10 years younger than her sister, your wife is an eligible designated beneficiary. Your wife can stretch the RMDs over your wife’s life expectancy. We can offer an annuity which will send your wife an equal check every year and ends at her life expectancy.
Great video. Love the white board.
For Roth 403b & Roth IRAs, etc. which don’t pay taxes to the IRS, why does the 10 year rule apply? How do the IRS even track distributions on non-taxed Roths (to include Roth 403b RMDs for retirement)?
The beneficiary enjoys tax free earnings for 10 years if they elect to leave the money inside the Roth. The IRS does a poor job of policing IRAs. That could change
Great information, as always. If you have substantial IRAs and have the ability to do Roth conversions, you are really providing huge benefits to your future heirs.
True, that's how they're set up, so it does apply just because it does. And that should change...
How does the IRS track that you have a Roth? Does the IRS require you to disclose something with your annual documentation for not-taxable accounts when you pay any taxes due on taxable income, or are the investment companies disclosing that information annually?
Does this mean that sibling inheriting a 401K Roth or IRA Roth that within 10 years say 65 y/o of the deceased that is 70 or older only has to take RMDs based on their age and could strech the RMD for more than 10 years if they lived to be 85 a 20 year stretch. Even better could they wait 10 years and then begin to strech it at age 75 based on their RMD chart.
What does this have to do with forgery proof counterfeit free arbiter interdiction triple quit claim title deed registration traditional family lawyers permission validation interdiction Trust Schedule A to Z total familiarity lawyers backing traditional family lawyers interdiction trust referee advocate administration?
@@MadOldMan-ck5wq What does this have to do with forgery proof counterfeit free arbiter interdiction triple quit claim title deed registration traditional family lawyers permission validation interdiction Trust Schedule A to Z total familiarity lawyers backing traditional family lawyers interdiction trust referee advocate administration?