When someone close to you passes on, a bequest of any kind can be a poignant reminder of the decedent's thought and care. An IRA can be an especially kind bequest because the money that remains in the account even as you withdraw yearly amounts -- Internal Revenue Service required minimum distributions -- can continue to earn interest. Although your IRA trustee may distribute the yearly RMD, it's a good idea to learn how to calculate the amount. That way, you can get an idea of how long the account will last and how much you are likely to receive from it.
Determine the balance of the IRA as of the end of the previous year. This information is available from your online or printed statement. You may also be able to get the figure by phone from your trustee. For example purposes, the balance is $500,000.
Look up the IRS Single Life Expectancy Table figure that corresponds to your age. For example, if you are age 32 when you inherit the IRA, the relevant figure on the table is 51.4. (The IRS estimates that you will live for 51.4 more years -- enjoy them while you can.)
Divide the IRA balance by the age-related life expectancy figure. In our example, $500,000 divided by 51.4 equals $9,727, the RMD for the year.
- Because account balances fluctuate and the life-expectancy table figures decrease as you age, you have to calculate the RMD at the end of every year.
- As an IRA beneficiary, you are also free to take distributions in a lump sum or to withdraw the full account balance within five years of the decedent's passing. These choices carry heavier tax obligations than the RMD option because you have to include the larger distribution amounts as income when you file your taxes. Lump-sum and five-year distributions may even push you into a higher tax bracket.
- Traditional IRA funds would escape taxation altogether if not for mandatory distributions. After all, traditional IRA contributions are deductible and earnings are not subject to capital gains. So every withdrawal you take from a traditional IRA is taxed as income. Of course, because the money has been withdrawn, it will no longer accrue earnings.
- If the deceased IRA owner was older than 70 1/2 and had not taken his RMD for the year, you must withdraw your first RMD by Dec. 31 of the year of death. Otherwise, you can begin your RMD withdrawals by Dec. 31 of the year following the death.
D. Laverne O'Neal, an Ivy League graduate, published her first article in 1997. A former theater, dance and music critic for such publications as the "Oakland Tribune" and Gannett Newspapers, she started her Web-writing career during the dot-com heyday. O'Neal also translates and edits French and Spanish. Her strongest interests are the performing arts, design, food, health, personal finance and personal growth.