What Table to Use for Inherited IRA: A Comprehensive Guide
In the realm of financial planning, understanding the intricacies of inherited IRAs is crucial. One of the most common questions that arise is, “What table to use for inherited IRA?” This article aims to provide a comprehensive guide to help you navigate this complex topic.
Understanding Inherited IRAs
An inherited IRA is an Individual Retirement Account that is passed down to a beneficiary upon the account holder’s death. The primary purpose of an inherited IRA is to ensure that the deceased’s savings are preserved and continue to grow tax-deferred. However, determining the appropriate table to use for inherited IRAs can be challenging, as it depends on various factors, including the account holder’s age and the type of IRA.
Choosing the Correct Table
To determine the correct table to use for inherited IRAs, you need to consider the following factors:
1. Account Holder’s Age at Death: The age of the account holder at the time of death is a critical factor in determining the appropriate table. The IRS provides a table that outlines the required minimum distribution (RMD) percentages based on the account holder’s age.
2. Type of IRA: Whether the inherited IRA is a traditional IRA or a Roth IRA also plays a role in determining the appropriate table. The RMD rules for inherited IRAs differ between these two types.
3. Beneficiary’s Life Expectancy: The life expectancy of the beneficiary is another important factor. The IRS provides a table that lists the life expectancy of beneficiaries based on their age.
Using the IRS Table
The IRS provides a table called “Single Life Expectancy Table” that can be used to determine the appropriate RMD percentage for inherited IRAs. To use this table, follow these steps:
1. Locate the row in the table that corresponds to the account holder’s age at death.
2. Find the column that corresponds to the beneficiary’s age.
3. The intersection of the row and column will give you the RMD percentage for the inherited IRA.
Example
Let’s say the account holder was 75 years old at the time of death, and the beneficiary is 50 years old. Referring to the Single Life Expectancy Table, we find that the RMD percentage for this scenario is 3.65%.
Conclusion
Determining the appropriate table to use for inherited IRAs is a crucial step in ensuring that the deceased’s savings are managed effectively. By considering the account holder’s age, type of IRA, and the beneficiary’s life expectancy, you can select the correct table and calculate the appropriate RMD percentage. Always consult with a financial advisor or tax professional to ensure compliance with IRS regulations and to make informed decisions regarding inherited IRAs.
