Understanding inherited retirement accounts

1. Can I roll over the 401(k) to my IRA account? If I can, when must I take required minimum distributions?

2. Will I owe any federal inheritance taxes?

3. Am I entitled to any additional Social Security benefits?

A: Regarding the 401(k), you can roll over the account to your IRA account. Because your husband had not reached his required beginning date, after you roll over the account to your IRA, you will not have any required minimum distributions until you reach age 75.

You will not owe any federal estate taxes. A surviving spouse is generally not required to pay any federal estate taxes.

Regarding Social Security benefits, because you are older than 60, you are entitled to a survivor benefit of almost 100% of the Social Security benefit your husband was receiving. If you wait until your full retirement age of 67, you would be entitled to 100% of the benefit he was receiving.

Between age 60 and ages less than the full retirement age, the benefit to a surviving spouse is prorated from 71.5% at age 60 up to 100% of the deceased spouse's benefit at the full retirement age. However, you are not entitled to both your disability payment and the survivor benefit; you are entitled to whichever amount is higher.

Q: I am self-employed and file Schedule C reporting my self-employed income. I purchase health insurance associated with the Affordable Care Act. I understand that I can deduct premiums associated with this insurance as well as long-term health insurance and other family health expenses on my tax return as long as the total deductions do not exceed my self-employed income. However, I don't believe these health care expenses can be reported on Schedule C. Where would I report them?

A: You should report them on Schedule 1, Line 17 of IRS Form 1040. You should fill out the self-employed health insurance worksheet associated with Schedule 1. You can include dental insurance premiums, long-term health care insurance premiums and associated health care expenses. See the instructions of the worksheet associated with health care expenses for Schedule 1.

Q: I understand that non-eligible beneficiaries under the SECURE Act who inherited IRA accounts after the SECURE Act passed (effective in 2020), when the deceased owner had reached their required beginning date, are required to take minimum distributions in 2024. However, I have seen different opinions. My understanding is that the IRS has not specifically stated that required minimum distributions must be taken in 2024. I know that after 10 years, I must withdraw all the funds in the IRA I inherited, but I want to know if I am required to take minimum distributions in 2024.

A: IRA expert Ed Slott and his staff recommend that you should be taking required minimum distributions in 2024 based on the single life-expectancy table specified in IRS Publication 590B. The IRS has not issued a final statement.

For three prior years, the IRS has waived the required minimum distribution; it has not done so for 2024. If the IRS mandates the required minimum distribution later in 2024, and you have postponed taking a required minimum distribution, you may have to make withdrawals at an inopportune time.

Even if you are allowed to postpone taking required minimum distributions now, and in subsequent years, you will be facing a large withdrawal 10 years after your inheritance, and your marginal tax bracket may be higher.

The bottom line is that there is uncertainty regarding whether the IRS will waive the required minimum distribution requirement in 2024.

Elliot Raphaelson welcomes your questions and comments at raphelliot@gmail.com.