(This article originally appeared in the February 2023 issue of Military Officer, a magazine available to all MOAA Premium and Life members. Learn more about the magazine here; learn more about joining MOAA here.)

When you inherit a retirement account, you, too, become subject to required minimum distributions (RMDs). But the rules aren’t always the same and can become even more complex.

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First, if you are a surviving spouse inheriting a retirement account, you get the most flexibility because you can take inherited retirement accounts as your own. In that case, since the money becomes yours, you use the original owner RMD rules.

“If the spouse is over 59½ when the [other] spouse passes away, it benefits them to roll it into their own IRA,” said former Capt. Keola Elobt, USA, MBA, AIF, a West Point graduate who is now the group head of MAI Retirement at MAI Capital Management.

But Elobt noted that some younger surviving spouses who need access to cash may want to stay a beneficiary of the IRA until they hit age 59½ to avoid getting hit with a 10% early-withdrawal penalty. After that, they can then take the account as their own. Only surviving spouses get these options.

[RELATED: MOAA's Digital Retirement Guide] 

If you are a nonspouse heir, you then need to determine what category of nonspouse heir you fall into. The Secure Act of 2019 added the “eligible designated beneficiary” category, effective in 2020. Nonspouse heirs fall into this category if they are the account owner’s minor child, a disabled individual, a chronically ill individual, or an individual who is not more than 10 years younger than the owner.

Eligible designated beneficiaries (EDBs) are allowed to use the old “stretch” rules, which let you take RMDs over your own life expectancy. But it’s important to note that the nonspouse heir RMD calculation is different from the original owner RMD calculation. A nonspouse heir consults Table I (Single Life Expectancy) and uses the factor based on the age they turned on their birthday of the RMD Rules for Heirs year they inherited the account. The prior year-end account balance is divided by that factor for the first RMD. In the next year, the heir subtracts 1 from that initial factor, and subtracts 1 in each subsequent year, to calculate their annual RMD.

[FROM IRS.GOV: Required Minimum Distributions for IRA Beneficiaries]

If you don’t qualify as an EDB, then a nonspouse heir must empty out the account within 10 years of the owner’s death. If the inherited IRA is a large, traditional account, that could potentially sock an heir with a very large tax bill.

“It’s a much bigger tax hit in a shorter amount of time,” said Maggi Keating, CFP®, a financial planner at FBB Capital Partners and the spouse of a retired Marine Corps colonel.

Heirs can always take out more than the RMD amount. In fact, heirs of traditional tax-deferred retirement accounts who are subject to the 10-year window may want to take out sizable distributions each year to spread out the tax bill over the decade.

Heirs subject to RMDs who take out too little can get hit with the same penalty on the shortfall. Recently, the IRS announced that nonspouse heirs who are subject to the 10-year window have been granted an RMD penalty waiver for 2021 and 2022. But whether these nonspouse heirs are even supposed to be taking RMDs each year of the 10-year window has become a major point of confusion, tax experts say. Because of the penalty waiver, these heirs don’t need to worry about it for the 2021 or 2022 tax years.

Before making any moves, “definitely wait to see what happens in 2023,” said Eric Bronnenkant, CPA, CFP®, head of tax at financial firm Betterment. He and other experts said the IRS is expected to clarify the rules in 2023. Stay tuned.