New Rules for Inherited IRAs

The new rules for inherited IRAs that came out in 2002 regulates how required death distributions of inherited IRA accounts are calculated. The new rules for inherited IRAs issued by the IRS apply to all beneficiaries of inherited IRAs taking a required death distribution from inherited IRAs to change the calculation of the required death distribution to match the regulations, no matter when the required death distribution is taken.

Implication of the new rules for inherited IRAs

Generally, the new rules for inherited IRAs, will result in smaller required minimum distribution amounts over a longer period of time. If a beneficiary of an inherited IRA decides to not change the way to calculate required death distribution in accordance with the new rules for inherited IRAs, then he or she can keep using the old way because the withdrawl amount will be larger than the required minimum distribution.

Who calculate the required death distribution?

The beneficiary of the inherited IRA is responsible for calculating the required death distribution amount and also the withdrawl of inherited IRA to satisfy the new rules for inherited IRAs and their Required Death Distribution each year.

Using new single life expectancy table in the New Rules for Inherited IRAs

Under the new rules for Inherited IRAs, IRA beneficiaries may now use a new Single Life Expectancy Table to calculate Required Death Distributions based on their own single life expectancy, non-recalculating.

Also, IRA beneficiaries receiving distributions from the inherited IRA under the "5 Year Rule" may switch to using the life expectancy rule providing that any amounts that would have been required to be distributed under the life expectancy rule for all distribution years before 2004 are distributed by the earlier of December 31, 2003 or the end of the 5 year period.

How to calculate required death distribution under the new rules for inherited IRAs?

• taking the IRA account balance as of the prior year end (December 31st value) and
• dividing it by the life expectancy factor of the beneficiary.