Inherited IRA and Retirement Account Distributions

Income Lab allows you to establish custom distribution plans from each inherited retirement account. Simply create a new account and choose one of the following Account Types:

• Inherited Retirement Acct (use for IRAs, 401(k)s, etc.)
• Inherited Roth Acct (use for all inherited Roth accounts, including IRAs and 401(k)s)
• Inherited Non-Qual Annuity

To set the distribution plan, click the gear icon, then click the Distribution Settings.

You will be able to specify the distribution period and frequency using the window that appears. You can even establish multiple distribution plans by splitting an account into multiple accounts in the plan and establishing different distribution plans for each "traunch" of the actual account. To model a lump-sum distribution, change the Distribution Plan Type from Installments to Lump Sum.

The rules surrounding distributions from inherited IRAs and other retirement accounts are now quite complex. Please be sure to consult your tax advisor to confirm the correct distribution plan rules and applicable life expectancy for the situation you are including in the plan.

Modeling "Stretch" Payments

If you are modeling a sequence of "stretch" payments based on an IRS-defined life expectancy, you will need to find the original life expectancy from IRA Table I (Single Life Expectancy).

For example, imagine John inherited an IRA from Mary in 2023 and elects to stretch the inherited account over his own life expectancy. John is 54 years old in 2023, an age for which IRS Table I sets a 32.5-year life expectancy. For this situation, you would want to enter a "Final Installment" date that is 32.5 years in the future (that is, either 2055 or 2056). The software will then automatically model the distribution over this account balance over time as required by stretch rules (1/32.5 of the account this year, 1/31.5 of this account in the following year, and so on).

If you are modeling a series of stretch payments that began in the past, be sure to shorten the Table I life expectancy by the number of years elapsed since the stretch payments began. For example, if an advisor were building a plan for John in 2028 (five years from when he inherited the account), his advisor would want to use 32.5 - 5 = 27.5 as the remaining stretch period. The advisor would not return to Table I and look up a new life expectancy from his attained age in 2028.