He proposed a new rule requiring beneficiaries of traditional IRAs (other than their spouse) to accept distributions each year for the 10-year period and a final distribution to settle the account at the end of the tenth year following the death of the original owner of the IRA, provided that the deceased owner was already deceased. Because Roth IRAs don't have RMDs, grandchildren can keep their inherited Roth IRAs intact until the tenth year, when they have to withdraw all the money. Your account or annuity doesn't lose IRA treatment if your employer or the employee association with which you have your traditional IRA makes a prohibited transaction, such as buying gold for an IRA. If the owner of an IRA dies after his 72nd birthday, but before April 1 of the following year, there is no minimum distribution required for that year because the death occurred before the required start date. To qualify for tax exemption, your traditional IRA assets must include an affected investment.
If you have more than one traditional IRA, you must determine a separate required minimum distribution for each IRA. Unlike a traditional IRA, an EDB that inherits a Roth IRA can always choose the 10-year rule if they wish, regardless of how old the owner of the Roth IRA was when he died. The 5-year rule requires that IRA beneficiaries who are not accepting life expectancy payments withdraw their entire IRA balance before December 31 of the year that marks the fifth anniversary of the owner's death. An IRA beneficiary is an eligible designated beneficiary if the beneficiary is the owner's surviving spouse, the owner's youngest child, a disabled person, a person with a chronic illness, or anyone else who is no more than 10 years younger than the owner of the IRA.
The 10-year rule requires that IRA beneficiaries who are not accepting life expectancy payments withdraw their entire IRA balance before December 31 of the year that marks the tenth anniversary of the owner's death. If someone other than the owner or beneficiary of a traditional IRA makes a prohibited transaction, that person may be subject to certain taxes. You may be able to make a qualifying HSA fund distribution from your traditional IRA or Roth IRA to your HSA. If you are the owner of a traditional IRA that is an individual retirement account, you or your trustee must calculate the minimum distribution required for each year.
If the traditional IRA ceases to be an IRA because you or your beneficiary have prohibited a transaction, neither you nor your beneficiary are responsible for these special taxes. A Roth IRA is an individual retirement plan that, except for what is explained in this chapter, is subject to the rules that apply to a traditional IRA (defined below). If you use part of your traditional IRA account as collateral for a loan, that part is considered a distribution and is included in your gross income. If your spouse is the sole beneficiary of your IRA and dies before you, your spouse will continue to be your sole beneficiary during the year you died simply because someone other than your spouse is named beneficiary for the rest of that year.
