Key Takeaways
- Most heirs who aren’t a spouse have to empty an inherited IRA by the end of the 10th year after the owner’s death.
- An heir who is older than the IRA owner, or no more than 10 years younger, can take withdrawals over their own life expectancy instead.
- On a $500,000 share, a brother 12 years younger than the owner has to take out an average of $50,000 a year, before any growth. A brother 2 years younger takes smaller yearly amounts, figured from the IRS’s Single Life Expectancy Table.
- An heir who qualifies can still choose the 10-year rule. The account can only be moved by a trustee-to-trustee transfer into an inherited IRA.
If you inherit an IRA from anyone other than your spouse, the usual rule is a tough one. The whole account has to come out by the end of the 10th year after the owner’s death. But if the IRA comes from a brother or sister close to your own age, you can generally take it out over the rest of your life instead.
Jim Saulnier walked through that exception on this week’s episode of The Retirement and IRA Show, in a segment on little-known IRA rules. His verdict: “Stretch IRA is not dead.”
Same IRA, two very different deadlines
Let’s take a hypothetical family. Your older brother dies at 65, before his own required minimum distributions have started. He leaves his IRA in two equal shares of $500,000: one to you, at 63, and one to your youngest brother, at 53.
You’re only 2 years younger than your late brother, so you can take your share out over your own life expectancy. Your youngest brother is 12 years younger than him, so his share has to be empty by the end of the 10th year after the death. If your older brother died this year, that’s the end of 2036.
That’s Saulnier’s own example, with the Three Stooges playing the family: Moe dies at 65 and leaves his IRA to Larry and Curly. “Curly is more than 10 years younger than Moe. Larry is not,” he said, so only Larry gets to stretch.
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Older, or no more than 10 years younger
For IRA owners who died after 2019, most heirs who aren’t a spouse have 10 years to empty the account. The exception covers what the IRS calls eligible designated beneficiaries: the owner’s surviving spouse, the owner’s minor child, a disabled or chronically ill heir, and anyone no more than 10 years younger than the owner. An eligible heir’s required withdrawals start the year after the owner’s death. They’re figured from the heir’s own life expectancy in the Single Life Expectancy Table in Publication 590-B, and that number goes down by one each year.
The age gap is measured from the owner. That’s why the exception mostly helps siblings, partners and friends close in age. Most heirs are grown children a generation younger than the owner, and they don’t qualify on age.
$50,000 a year, or a lot less
Spread evenly over 10 years, your youngest brother’s $500,000 comes out at $50,000 a year, and more if the account grows along the way. Withdrawals from a traditional IRA count as income, so that’s $50,000 a year added to his tax return. And at 53, he may well still be earning a paycheck on top of it.
You’re on a different schedule. Each year’s required withdrawal is the balance divided by your remaining life expectancy from the table, so it’s sized to the rest of your life. Whatever you don’t have to take stays in the account. You can always take more than the minimum in a year when your income is low, and leave the rest alone when it isn’t.
Move it the right way, and pick your clock
Qualifying doesn’t lock you in. Most IRAs’ terms put an eligible heir on life-expectancy withdrawals unless the heir chooses the 10-year rule, which can suit someone who wants the money sooner.
Either way, a sibling’s IRA never becomes your own. You can’t roll money into or out of it, and money you take out can’t go back in. The only way to move it to another firm is a trustee-to-trustee transfer into an inherited IRA kept in your late brother’s name for your benefit.
Frankly, if I were the 63-year-old here, I’d take the stretch. The minimum is smaller every year, and I can still take out more whenever I want it. The one thing that would change who gets to stretch is the order of deaths. Saulnier added a 75-year-old fourth brother, Shemp, who can stretch whatever Moe leaves him because he’s older than Moe. So if your youngest brother had died first and left his IRA to your oldest brother, that 12-year gap wouldn’t have held anyone to 10 years.
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Disclaimer:
Please note that the articles on TIKR are not intended to serve as investment or financial advice from TIKR or our content team, nor are they recommendations to buy or sell any stocks. We create our content based on TIKR Terminal’s investment data and analysts’ estimates. Our analysis might not include recent company news or important updates. TIKR has no position in any of the stocks mentioned. Thank you for reading, and happy investing!
