An individual inheriting a mother’s IRA faces a $10,000 required minimum distribution (RMD) obligation for 2025, despite no cash available in the account. The article outlines strategic options for liquidating assets to meet the IRS requirement without incurring penalties.
- A $10,000 RMD is required from an inherited IRA in 2025.
- The IRA holds only investment assets with no cash balance.
- Failure to withdraw the full amount triggers a 50% IRS penalty on the shortfall.
- Liquidation must occur before December 31, 2025, under the 10-year rule.
- Beneficiaries should prioritize low-impact asset sales to minimize tax burden.
- Professional tax guidance is advised to manage reporting and tax consequences.
An individual must satisfy a $10,000 required minimum distribution (RMD) from an inherited IRA in 2025, a mandatory withdrawal under IRS rules for beneficiaries of deceased account holders. The inherited IRA, established by the individual’s mother, currently holds only investments and no cash, creating a liquidity challenge. To comply with the RMD mandate, the beneficiary must sell a portion of the IRA’s holdings before the December 31, 2025, deadline. The IRS requires RMDs to begin in the year following the original account holder’s death, and failure to withdraw the full amount results in a 50% penalty on the shortfall. For this scenario, the $10,000 RMD must be withdrawn from the inherited IRA, which is governed by the 10-year rule if the beneficiary is not a spouse. This rule does not require annual distributions but mandates complete withdrawal by the end of the 10th year after the original owner’s death. The beneficiary should consider liquidating assets with the lowest tax impact and minimal market disruption. Options include selling appreciated stocks, mutual funds, or exchange-traded funds (ETFs) with significant unrealized gains. A phased liquidation strategy may help manage capital gains taxes, particularly if the sale would push the beneficiary into a higher tax bracket. Reinvesting the proceeds in a taxable brokerage account is permissible, but the distribution itself must be reported on Form 1099-R. Financial advisors recommend documenting all transactions and consulting a tax professional to assess the impact of the RMD on the beneficiary’s overall tax liability, especially in years with other income sources or deductions.