Ask Liz Weston

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required minimum distributions

Q&A: What to do when you missed years of inherited IRA distributions

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Dear Liz: I inherited my father’s IRA through a trust in 2010. Unbeknownst to me at the time, I’ve now found out I should have taken that money out over the following years, but I didn’t.

I turned 73 in May of this year, and I’d like advice on what I should do with that account.

Answer: Get thee to a tax pro. You’ve got some distributions to make, taxes to pay and penalties to mitigate.

Today’s rules for inherited IRAs require most non-spouse beneficiaries to empty the accounts within 10 years, thanks to the SECURE Act of 2019.

Before that, most beneficiaries could spread required minimum distributions over their own lifetimes.

Depending on the type of trust, you might have been required to take RMDs at the same pace your father was taking them. But either way, distributions were supposed to be made.

You (or better yet, your tax pro) will need to reconstruct the distributions that should have been taken since 2010, says Mark Luscombe, principal analyst for Wolters Kluwer Tax & Accounting.

Those distributions should be made as soon as possible, and then you (or better yet, your tax pro) can ask for relief from the possible 25% excise tax penalty that would otherwise be owed on the distributions you missed.

Your tax pro will need a copy of the trust, your dad’s date of death and the IRA’s Dec. 31 balances for every year since then.

Q&A: Roth IRA conversions can benefit your heirs—but at a cost

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Dear Liz: I have been reading the questions about converting an IRA to a Roth and want to know how it might apply to my situation. I have been getting my required minimum distributions for a while, and I have been paying the surcharges on Medicare because of my higher income. Would it still be worth it to convert to a Roth? My children have very good income so inheriting my IRA and paying the taxes on that will probably be a burden. Thoughts?

Answer: A Roth IRA is a wonderful asset to inherit. Beneficiaries typically must empty the account within 10 years, but the withdrawals are entirely tax free.

That generosity comes at a cost, of course. You’d have to pay the taxes on any amounts you convert from your IRA, and the conversions could trigger even higher Medicare premiums. A tax pro can guide you about whether conversions make sense as well as how to do them: gradually over time or all at once.

Got a question about money? You can submit it here.

Q&A: Is a QLAC a good idea?

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Dear Liz: I read in a recent column that you mentioned qualified longevity annuity contracts (QLAC). I have heard about them before but don’t know the pros and cons about them. Is that something that you could write about in a future column?

Answer: QLACs are complicated enough to be beyond the scope of this column, but you can read an excellent summary by Morningstar’s Christine Benz at https://www.morningstar.com/personal-finance/can-qualified-longevity-annuity-contract-aid-your-retirement-plan.

QLACs are deferred, fixed-income annuities that pay out guaranteed income once you’ve reached a certain age (up to age 85). You can buy them with IRA money, up to a certain lifetime limit ($210,000 per individual in 2026). The amount you put into the annuity is excluded from required minimum distribution calculations until payouts begin.

Guaranteed income and reduced RMDs are definite “pros,” but buying one of these annuities is typically an irrevocable decision — you can’t get your money back if you need it for something else. Fixed-income annuities are also vulnerable to inflation, and it’s important to find a strong insurer, since you’re essentially buying a promise of future payments. Ideally, you’d hire a fiduciary, fee-only advisor to review the contract and your situation to make sure it’s a good fit before you buy.

Q&A: Is there a way to avoid taxes on RMDs?

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Dear Liz: I have read advice on how to minimize taxes for people who potentially could have higher incomes and taxes after age 70 when they have pensions, Social Security payments and retirement account RMDs. The most common strategy seems to be doing Roth conversions during the later stages of employment, particularly if one spouse retires before the other so family income decreases.

However, I have not read good advice for older people when this problem has already started (other than noting that one way to avoid paying taxes is to donate the RMD funds). Is there any strategy for people who already have this triple income to reduce paying taxes and high Medicare premiums? We lived below our means for our working lives to save for retirement, but now see our savings dissipate due to the taxes and Medicare premiums.

Answer: Your situation illustrates why it’s so important to get good tax advice years before RMDs start, because you have fewer options after that point.

The alternative you mentioned is called a qualified charitable distribution. QCDs allow you to transfer a certain amount (up to $111,000 per individual in 2026) directly from your IRA to a charity. The transfer can satisfy your RMD requirement, but the amount is not included in your taxable income.

Another option is buying a qualified longevity annuity contract, or QLAC. These deferred income annuities start paying out guaranteed income for life once you’ve reached a certain age (up to age 85). You can use up to a certain lifetime amount of IRA money ($210,000 per individual in 2026) to purchase the contract. That money is excluded from RMD calculations until payouts begin.

As with any annuity, you’ll want to research your options, understand the downsides — including lack of liquidity, because the amount you spend typically can’t be recovered — and seek out fiduciary advice before you proceed.

Q&A: Broker made mistake calculating RMDS

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Dear Liz: While preparing our 2025 taxes, I noticed that our brokerage doubled the required minimum distributions for my husband and me for 2025. I called, and they said they were “running two systems” and sent a notice to investors to look for any problems. I do not recall ever receiving such a notice. Also, I did not notice the increase, as the bank used for these direct deposits also has multiple CDs, and the account is a “rainy day” fund that we use only for emergencies.

This money moved us into another tax bracket and we will be hit with a big tax bill. Also, we have lost out on future returns from the money that was distributed rather than left alone to grow. What is the brokerage’s responsibility? Do we just have to bite the bullet and pay the taxes on a mistake?

Answer: You had a 60-day window to return the excess withdrawal to your retirement accounts without incurring taxes, says Mark Luscombe, principal analyst for Wolters Kluwer Tax & Accounting.

Assuming that window has passed, you can consider making a claim against the brokerage firm for the higher taxes and lost earnings. Start by making a written complaint to the brokerage firm’s compliance department. If you don’t get satisfactory results, you can file a complaint with the FINRA, the Financial Industry Regulatory Authority, at https://www.finra.org/investors/need-help/file-a-complaint.

Unfortunately, the IRS holds taxpayers responsible for correctly calculating and taking RMDs, even when their brokerage firms make mistakes. You would be wise to put reminders in your calendar to check your brokerage’s calculations as well as the actual distributions while you still have time to correct any errors. You may also want to consider consolidating your finances to make it easier to monitor your accounts.

Q&A: How long should I wait before withdrawing from my IRA?

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Dear Liz: My husband and I disagree over when to use pre-tax monies (e.g., IRAs). He’ll be 69, and I’ll be 67 in the coming year, so we aren’t required to take distributions yet, and he isn’t starting Social Security until 70.

He insists it’s better to use our regular assets to live on and let the IRA monies grow as long as possible. I’d rather save the regular assets (many of which have high capital gains) and leave them to our adult kids after we die.

The pre-tax funds are now $4 million. Now that our kids would have to empty the IRA accounts within 10 years (no more stretch IRAs), doesn’t that make it more reasonable to start using some of those funds now? I’m assuming the IRA balances would still be significant, even after taking required minimum distributions. I’ve gotten most of my IRA funds converted to Roth so we don’t have to take RMDs on that money, but he won’t consider conversions. Is he right about limiting our expenditures to money from the regular brokerage account? Once we start Social Security and RMDs, we’ll have to pay more taxes on any withdrawals compared to now.

Answer: A lot of savers got the message pounded into their heads that retirement accounts should be left to grow tax-deferred as long as possible. The idea was that you’d be in a lower tax bracket when you retired and were finally forced to start withdrawals. You could leave any remaining retirement money to your children and they could continue benefiting from tax deferral by extending distributions over their lifetimes.

As you note, this “stretch IRA” option is no longer available for most non-spouse beneficiaries, who must empty inherited retirement accounts within 10 years. Plus, good savers like you and your husband often face a higher tax bracket, not a lower one, when required minimum distributions begin. That further weakens the argument for delaying withdrawals as long as possible. Also, large-enough RMDs can raise your Medicare premiums and make more of your Social Security income taxable, compounding the overall cost.

From your heirs’ point of view, inheriting your Roth IRA or regular assets is a much better deal than inheriting a pre-tax IRA. Every withdrawal from the pre-tax IRA will be subject to income taxes. Not so the Roth, which offers tax-free withdrawals. Regular assets will get a new, stepped-up value at death so that no capital gains taxes will be due on the appreciation that occurred in the original owner’s lifetime.

You have a few years to make adjustments before you’re locked into RMDs. Roth conversions are one possibility, as are “proactive” withdrawals — starting distributions from your IRAs before they’re required. Additional options to explore include qualified charitable distributions (direct transfers from your IRA to a charity) and qualified longevity annuity contracts, which can provide a lifetime stream of income starting at age 85.

You’d be wise to consult a tax pro who can model different scenarios to figure out the best approach for your situation.