Inherited IRAs: 2025 Updates and Tax Planning Strategies
If you have inherited (or may someday inherit) an individual retirement account (IRA), the 2025 changes may significantly impact your tax planning.
Key Updates
- RMD requirements. Starting in 2025, annual required minimum distributions (RMDs) are mandatory for most inherited IRAs. Failure to comply may result in penalties of up to 25 percent, reducible to 10 percent if corrected promptly.
- 10-year rule enforcement. Non-spousal beneficiaries must fully deplete inherited IRAs within 10 years of the original owner’s death, with annual RMDs generally required.
Spouses and Special Cases
- Surviving spouses can assume ownership of the IRA or withdraw from it as a beneficiary. Roth IRAs offer additional flexibility, allowing for tax-free growth without RMDs.
- Minor children have until age 31 to deplete the account, with the 10-year rule beginning at age 21.
- Disabled beneficiaries may be exempt from the 10-year rule indefinitely.
Planning Strategies
Strategic withdrawals can help you avoid higher tax brackets. For example, spreading withdrawals evenly over 10 years can minimize tax impact. Timing withdrawals based on expected tax rate changes can also optimize savings.
If you want to discuss inherited IRAs, please call me on my direct line at 713-857-6300.