Inherited Accounts, RMDs & the Ten-Year Rule: What Beneficiaries Need to Know
Understanding the guidelines surrounding Required Minimum Distributions (RMDs) becomes crucial as we navigate the complexities of personal finance and retirement planning. For those who have inherited retirement accounts or are approaching their RMD age, the ten-year rule is a pivotal part of this financial landscape. Here are the ten things you need to know about it.
1. The origin of the ten-year rule—The rule took effect in 2020 with the passing of the Setting Every Community Up for Retirement Enhancement (SECURE) Act. This legislation revamped many rules regarding retirement accounts, including RMDs.
2. Who the rule applies to—The ten-year rule primarily applies to non-spouse beneficiaries of Individual Retirement Accounts (IRAs) and defined contribution plans such as 401(k)s, 403(b)s, and other employer-sponsored retirement plans.
3. The purpose of the rule—The rule mandates that these beneficiaries empty the account by the end of the 10th year following the original account owner's death. This rule ensures that tax-deferred growth benefits don't extend indefinitely and that the government can reclaim some of its deferred tax money.
4. No yearly RMDs—Under the ten-year rule, there's no requirement to withdraw a certain amount each year. As long as the entire account balance liquidates by the end of the tenth year after the account owner's death, the beneficiary is compliant with the rule.
5. Tax implications— Withdrawals from inherited retirement accounts are subject to income tax, so strategically timing withdrawals to manage the tax impact is beneficial. For instance, spreading distributions over the 10 years could keep the beneficiary from moving into a higher tax bracket.
6. Exceptions to the rule-—There are notable exceptions to the ten-year rule: surviving spouses, minor children of the account owner, disabled or chronically ill individuals, and beneficiaries less than 10 years younger than the account owner. These beneficiaries can take distributions over their lifetime, providing a potential tax benefit.
7. The rule applies even if the account owner was taking RMDs—The ten-year rule applies regardless of whether the original account owner had started taking RMDs. It eliminates the previous rule that allowed non-spouse beneficiaries to stretch RMDs over their life expectancy.
8. Multiple owners mean multiple RMDs—Remember that if you have inherited retirement accounts from multiple owners, each account has a ten-year distribution period that begins on the date of each account owner's death.
9. Ten-year rule and Roth IRAs— One exception to the ten-year rule is Roth IRAs. Even though non-spouse beneficiaries must liquidate inherited Roth IRA accounts within ten years, they don't face the same tax implications because qualified distributions from Roth IRAs are tax-free.
10. The rule is still evolving— The IRS still needs to issue complete guidance on how exactly the ten-year rule may apply. Due to the changing Presidential administration and possible revision of the tax code, consult financial and tax professionals to help navigate this complex area.
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In conclusion, understanding the ten-year rule for Required Minimum Distributions can significantly impact one's retirement planning and wealth management approach. As with any financial matter, seeking professional advice tailored to individual circumstances is critical. While the landscape may seem intricate, comprehending this rule can provide clarity, leading to well-informed and beneficial financial decisions.
This material was prepared by Fresh Finance for the Investment Service Center’s use. Copyright FMG Suite.
Markets are forward looking, but earnings estimates don’t have to be. Currently, consensus is projecting 1Q25 and FY25 year-over-year EPS growth of 7.1% and 10.0%, respectively. Relative to 10-year medians of 4.4% and 3.1%, both estimates are strong. Unfortunately, they’re based on economic assumptions that no longer hold. Tariffs will slow growth, increase inflation and undermine confidence. Weaker demand will hurt revenues, higher costs will hurt margins and reduced profitability will hurt buybacks.
Even if the administration changes its mind, the longer uncertainty remains, the longer spending slumps, and the greater the hit to growth. Equity analysts aren’t immune to this uncertainty. Rather than bouncing estimates around with tariffs, current numbers are effectively pre-policy. As this week’s chart shows, downward revisions to 2025 EPS estimates aren’t any larger than normal. Since January, consensus has dropped 2.5% compared to the 10-year average of 2.6%. As policy clarifies, there’s a risk EPS estimates could hit the ground hard, catapulting valuations. Early impacts of tariffs are showing up in other ways. Retail sales spiked 1.4% in March, the largest m/m increase in over two years, driven by 5.3% growth in auto sales as consumers front-run tariffs.
Moreover, 44 companies have reported earnings so far, and tariffs have been mentioned 239 times. Many management teams, however, are pausing guidance until policy clarifies. For now, the range of outcomes is wide, and the impacts are difficult to predict. Companies’ ability to hold the line will depend on their individual supply chains, pricing power and balance sheets, to name a few. In times like these, first principles are paramount: quality, diversification and a long-term perspective.
Chart of the Week: Source: FactSet, Standard & Poor's, J.P. Morgan Asset Management. Data are as of April 17, 2025.
Thought of the Week: Source: FactSet, Standard & Poor's, J.P. Morgan Asset Management. Data are as of April 17, 2025.
Index: Institute for Supply Management Manufacturing Index; PCE: Personal consumption expenditures; Philly Fed Survey: Philadelphia Fed Business Outlook Survey; PMI: Purchasing Managers' Manufacturing Index; PPI: Producer Price Index; SAAR: Seasonally
Adjusted Annual Rate
MSCI EAFE is a Morgan Stanley Capital International Index that is designed to measure the performance of the developed stock markets of Europe, Australasia, and the Far East.
Bond Returns: All returns represent total return. Index: Bloomberg US Aggregate; provided by: Bloomberg Capital. Index: Bloomberg Investment Grade Credit; provided by: Bloomberg Capital. Index: Bloomberg Municipal Bond 10 Yr; provided by: Blomberg Capital. Index: Bloomberg Capital High Yield Index; provided by: Bloomberg Capital.
Key Interest Rates: 2 Year Treasury, FactSet; 10 Year Treasury, FactSet; 30 Year Treasury, FactSet; 10 Year German Bund, FactSet. 3 Month LIBOR, British Bankers’ Association; 3 Month EURIBOR, European Banking Federation; 6 Month CD, Federal Reserve; 30 Year Mortgage, Mortgage Bankers Association (MBA); Prime Rate: Federal Reserve.
Commodities: Gold, FactSet; Crude Oil (WTI), FactSet; Gasoline, FactSet; Natural Gas, FactSet; Silver, FactSet; Copper, FactSet; Corn, FactSet. Bloomberg Commodity Index (BBG Idx), Bloomberg Finance L.P.
information from FactSet's Pricing database as provided by MSCI. Russell 1000 Value Index,
Style Returns: Style box returns based on Russell Indexes with the exception of the Large-Cap Blend box, which reflects the S&P 500 Index. All values are cumulative total return for stated period including the reinvestment of dividends. The Index used from L to R,
top to bottomare: Russell 1000 Value Index (Measures the performance of those Russell 1000 companies with lower price-to book ratios and lower forecasted growth values), S&P 500 Index (Index represents the 500 Large Cap portion of the stockmarket, and
is comprised of 500 stocks as selected by the S&P Index Committee), Russell 1000 Growth Index (Measures the performance of those Russell 1000 companies with higher price-to-book ratios and higher forecasted growth values), Russell Mid Cap Value Index (Measures
the performance of those Russell Mid Cap companies with lower price-to-book ratios and lower forecasted growth values), Russell Mid Cap Index (The Russell Midcap Index includes the smallest 800 securities in the Russell 1000), Russell Mid Cap Growth Index (Measures the performance of those Russell Mid Cap companies with higher price-to-book ratios and higher forecasted growth values), Russell 2000 Value Index (Measures the performance of those Russell 2000 companies with lower price-to-book ratios and lower forecasted growth values), Russell 2000 Index (The Russell 2000 includes the smallest 2000 securities in the Russell 3000), Russell 2000 Growth Index (Measures the performance of those Russell
2000 companies with higher price-to-book ratios and higher forecasted growth values).
Past performance does not guarantee future results.
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