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Retired Military Finances 301: Inherited, Inherited IRAs: The Kobayashi Maru of Income Tax? Thumbnail

Retired Military Finances 301: Inherited, Inherited IRAs: The Kobayashi Maru of Income Tax?

Retirement Funding Taxes

I’m not a Trekkie, but I’ve seen enough Star Trek movies to know about the Kobayashi Maru, the supposedly unsolvable training exercise. And, I’ve often said that dealing with inherited IRAs is likely the most complicated aspect of the individual income tax code. I still believe that is true, but…after SECURE Act 2.0, inherited, inherited IRAs are likely the Kobayashi Maru of the individual tax code.

Inherited IRAs Used to be Relatively Straight Forward

While the rules were complicated, prior to SECURE 2.0 they were consistent when dealing with live individuals (not non-persons like trusts or estates). When the account was inherited, the beneficiary took distributions based on the IRS life expectancy tables. When inherited a second time the distributions continued based on the same calculations.

Under SECURE 2.0, the rules depend on whether the owner of the IRA died before or after SECURE 2.0 went into effect (31 Dec 22) and the relationship of the owner of the IRA and the beneficiary. Let’s look at some examples (shout out to Jeff Levine, who put together the instruction I pulled this info from).

You Inherit an IRA from Mom that Mom Inherited from Dad.

We’ll assume for this scenario that Mom didn’t roll the IRA into her own IRA and kept it as an inherited/beneficiary IRA. This scenario would also apply to any eligible designated beneficiary that isn’t a spouse (they don’t have the option to roll into their account).

  • Both Dad & Mom died after SECURE 2.0. Since Mom is a designated beneficiary, she has options. If Dad died prior to his Required Beginning Date (RBD), she can stretch the distributions over her lifetime (IRS calculated) or leave it all invested and take all the money out at 10 years (or in amounts of her choosing as long as the account is empty in 10 years). If Dad died after the RBD, Mom must, at a minimum, stretch the distributions based on her life expectancy. When Mom dies what she selected determines what you must do. If she elected the 10-year option, you finish it out. In other words, the account must be empty within 10 years after Dad passed away. If Mom selected the stretch option, you continue it (using her life expectancy) AND the account must be empty 10 years after Mom passed away.
  • Both Dad & Mom died before Secure 2.0. All successor beneficiaries take annual distributions based on Mom’s life expectancy. There is no 10-year rule.
  • Dad died before and Mom dies after Secure 2.0. Successor beneficiary continues to take distributions based on Mom’s life expectancy AND the account must be empty 10 years after Mom passes away


You Inherit an IRA from Your Sister Who Inherited it from Your Mom

We’ll assume in this case your Mom was the original IRA owner. These rules apply if you inherit from anyone considered a Non-Eligible Designated Beneficiary.

  • Both Mom and your sister died after Secure 2.0. If your Mom passed away prior to RBD, your sister can use a straight 10-year rule and just empty out the account within 10 years after Mom’s death. If Mom passed away after RBD then your sister must start taking distributions based on her life expectancy AND the account must be emptied in 10 years. In either case you continue under the rules your sister elected, but you don’t get a new 10-year period. The 10-year rule continues to be based on when Mom passed away.
  • Both Mom and your sister died before Secure 2.0. You can continue the distributions based on your sister’s life expectancy.
  • Mom died before and your sister died after Secure 2.0. You’ll continue to take distributions based on your sister’s life expectancy AND the account must be empty prior to 10 years from your sister’s death


I think this is most of the possible permutations.

But Wait There is More!

If that wasn’t complicated enough, if Mom inherits from Dad and dies prior to her RBD, then she is treated as the original IRA owner and the rules for an inherited IRA, not an inherited, inherited IRA will apply.

I think Capt. Kirk had to cheat to solve the Kobayashi Maru. I don’t recommend that with the tax code.

Military Finances are Different

Inherited IRA distribution rules are the same for all taxpayers: civilians, veterans and military members. That isn't always the case. There are several places where the tax code treats civilians differently than active and retired military members. Active and retire military members also have unique financial benefits not available to their civilian counterparts. That is why we think you should work with a financial planner that deals with your unique issues each and every day. If you'd like to talk with us about how we work with clients just like you, use the button below to schedule a free, initial consultation.

If you found this article useful, you might like the following blog posts:

Retired Military Finances 301: I Inherited Mom's (or Dad's) IRA. How do I Minimize my Tax Bill?


Retired Military Finances 401: IRA Considerations in the Year Dad (or Mom) Passes Away


Retired Military Finances 201: What Happens When You Inherit Investment Funds?



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