When you inherit an individual retirement account, you are obligated to take a required minimum distribution (RMD) every year until all of the funds have been withdrawn from the IRA. Although you'll have to add the distributions to your income for tax purposes, the Internal Revenue Service allows you to spread the distributions out based upon your life expectancy. To help with the calculation, the IRS provides three life expectancy charts. One is for the account holder, one is for a person who's married to a much younger spouse, and the last is for account beneficiaries.
Find your current age and related IRS life expectancy on the chart. At birth, the IRS expects 82.4 years of living, but the chart extends well beyond 82 years. For example, if the beneficiary is 90 years old, the IRS assumes a life expectancy of 5.5 years. The life expectancies are based upon actuarial data that the IRS has collected.
Calculate your RMD by dividing the account balance by your life expectancy. For example, if you are 44 years old, the IRS expects you to live another 39.8 years. If you inherit a $50,000 IRA, divide $50,000 by 39.8 years, and the result is your RMD.
Begin taking distributions based on the results from Step 2. Keep in mind that you must report these distributions as annual income for tax purposes.
There are several free online calculators to help you with the calculation, but make sure you're using the beneficiary life expectancy chart.
Special rules for spouses apply -- you can roll the account balance over to your own IRA if you're the surviving spouse.
- There are several free online calculators to help you with the calculation, but make sure you're using the beneficiary life expectancy chart.
- Special rules for spouses apply -- you can roll the account balance over to your own IRA if you're the surviving spouse.
Lisa Bigelow is an independent writer with prior professional experience in the finance and fitness industries. She also writes a well-regarded political commentary column published in Fairfield, New Haven and Westchester counties in the New York City metro area.