How to Calculate the Single Life Expectancy for an Inherited IRA Account

When you inherit an IRA, prepare to start taking out money. Either you empty the account over five years or you make minimum annual withdrawals until the money is gone. The only exception is if you inherit from your spouse, in which case you can postpone withdrawing money for years. You calculate your mandatory minimum withdrawal using the IRS life-expectancy tables.

The Table

The life expectancy tables are in appendix C of IRS publication 590, Individual Retirement Arrangements. You can find the publication on the IRS website. When the time comes to make your first withdrawal -- the year after the account owner dies -- look up your age in Table I, "Single Life Expectancy." Next to your age, you'll find what the IRS considers your remaining life expectancy. If you're 25, for instance, it says you have 58.2 years to go.

Calculations

Assume you inherit the account from your father and it has $120,000 in it on Dec. 31 of the year he died. When you calculate your required withdrawal the following year, divide your 58.2 year life expectancy into $120,000 to get $2,061.85. Withdraw at least that much -- you can always take more -- from the account before the year ends. If you don't meet the minimum, the IRS imposes a 50-percent tax penalty on the shortfall. For example, if you under-withdraw by $1,000, you pay $500 in extra tax.

Repeat

When the next year rolls around, you can't just take out $2,061.85 again. Your inherited IRA isn't constant: The account investment may have earned interest or lost value, depending on the market. When you're ready to make the second year's mandatory minimum withdrawal, you repeat the calculation using your new age -- 26 -- and the IRA's worth on the most recent Dec. 31. Do this every year thereafter as long as there's money left in the IRA.

Considerations

If the original beneficiary dies, an inherited IRA can pass to an alternative beneficiary. If you inherit the account this way, you use the original beneficiary's age instead of your own, adjusting it each year as if he were still alive and growing older. If the account owner died after 70 1/2 -- the age at which he'd have to make mandatory withdrawals -- you can base your mandatory minimum withdrawals on Table III, using the owner's age. The younger age is usually the best option, as the minimum withdrawal each year is smaller.

 

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Author of two film reference books, "Cyborgs, Santa Claus and Satan" and "The Wizard of Oz Catalog." Published in Air & Space, Backpacker, Newsweek, The Writer, and multiple trade journals (can fax samples if requested, don't have them available digitally)