What happens if the account holder dies before taking RMDs?<\/strong><\/h2>\nRMD rules also apply to retirement account beneficiaries. If a 401(k) or IRA owner dies after December 31, 2019, the rules for withdrawing the remaining account balance depend on who inherits the account. In most cases, the entire balance must be withdrawn within ten years of the original owner’s death. This applies whether or not the account holder has already started taking RMDs.<\/p>\n
However, there are exceptions for certain beneficiaries. If the account is inherited by a minor child, a surviving spouse, a disabled or chronically ill individual, or someone who is less than ten years younger than the original owner, they are not required to follow the 10-year rule. Instead, they can stretch out withdrawals over their lifetime. This allows smaller distributions over the years and minimizes tax burdens for the inheritor.<\/p>\n
For beneficiaries who do not qualify for an exception, failing to withdraw the full balance within ten years can lead to penalties. The IRS requires the funds to be fully distributed by the end of the tenth year following the original owner\u2019s death. The penalty for not taking an IRA distribution on time is a 25% excise tax.<\/p>\n