How to Calculate RMD from Inherited IRA: A Comprehensive Guide
Understanding how to calculate the Required Minimum Distribution (RMD) from an inherited IRA is crucial for individuals who have inherited an Individual Retirement Account (IRA). The RMD is the minimum amount of money that must be withdrawn from an IRA each year, starting in the year after the account owner’s death. Failure to comply with RMD regulations can result in penalties and interest. This article will provide a comprehensive guide on how to calculate RMD from an inherited IRA, ensuring that you meet the necessary requirements and avoid any potential penalties.
1. Determine the Account Owner’s Age at Death
The first step in calculating the RMD from an inherited IRA is to determine the age of the account owner at the time of their death. This information is essential to determine the appropriate life expectancy table to use for calculating the RMD. If the account owner was younger than 70½ at the time of their death, you may need to use a different table, such as the Uniform Lifetime Table, which applies to most individuals.
2. Determine the Inherited IRA Account Balance
The next step is to determine the value of the inherited IRA as of December 31st of the year prior to the year in which the RMD must be calculated. This value is typically found on the most recent IRA statement. It is important to note that the value of the IRA should be adjusted for any contributions made or distributions taken after December 31st of the prior year.
3. Use the Life Expectancy Table to Determine the RMD Percentage
Once you have the account owner’s age at death and the inherited IRA balance, you will need to use the appropriate life expectancy table to determine the RMD percentage. This percentage will be based on the account owner’s age at death and the number of years remaining in their life expectancy. You can find the appropriate table in IRS Publication 590-B, Distributions from Individual Retirement Arrangements (IRAs).
4. Calculate the RMD Amount
After determining the RMD percentage, you can calculate the RMD amount by multiplying the inherited IRA balance by the RMD percentage. For example, if the inherited IRA balance is $100,000 and the RMD percentage is 5%, the RMD amount would be $5,000.
5. Take the RMD by December 31st of the Current Year
The RMD must be taken by December 31st of the current year. If you fail to take the RMD by this deadline, you may be subject to a 50% penalty on the amount not withdrawn. It is important to plan ahead and ensure that the RMD is taken on time.
In conclusion, calculating the RMD from an inherited IRA requires careful attention to the account owner’s age at death, the inherited IRA balance, and the appropriate life expectancy table. By following these steps, you can ensure compliance with RMD regulations and avoid any potential penalties. Remember to consult with a tax professional if you have any questions or concerns regarding the calculation of RMD from an inherited IRA.
