Brandon Renfro, CFP®, RICP, EA
6 min read
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My wife and I own five senior homes in our self-directed IRAs. How do we transfer them to our two sons after we die? Under the new IRS rules it appears that the boys have only 10 years to take the money out. The houses are worth about $1.75 to $2 million in total now.
– Jack
Yes, you are correct that most non-spouse beneficiaries are now required to withdraw the entire value of an inherited IRA within 10 years. This applies to self-directed IRAs as well, so your sons will need to address this at some point. However, the fact that your IRAs hold real estate may make distributions more complex.
If you need help managing your assets and planning your estate, work with a financial advisor with inheritance planning expertise.
The SECURE Act of 2019 significantly changed the rules for IRA beneficiaries. Before the law passed, many beneficiaries could "stretch" distributions over their life expectancy. This allowed inherited funds to remain in the tax-deferred (or tax-free, in a Roth) account for decades.
With certain exceptions, most non-spouse heirs are required to fully withdraw the assets from an inherited IRA within 10 years of the original owner's death:
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If the original account holder had already begun taking required minimum distributions (RMDs), the beneficiary must typically continue annual withdrawals through years 1 to 9.
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If the original owner hadn't yet reached the age for RMDs, the beneficiary isn't required to take yearly distributions but still must fully distribute the account within 10 years.
In your case, your sons will likely need to withdraw the full value of the IRA within 10 years of either your death or your wife's. Whether they will also need to take RMDs during the first nine years depends on your and your wife's ages when you pass.
Be aware that there is no exception for the RMD requirement (if it applies) or the 10-year rule just because the assets are not liquid. (And if you need help planning around these inheritance rules, speak with a financial advisor.)
Taking distributions from an IRA is easy when it holds liquid securities like stocks, bonds and mutual funds. You simply sell enough of those assets to generate the necessary cash and take a withdrawal. Of course, it's not that straightforward if you own physical property like real estate. Selling real estate generally requires more time and administrative effort.
