M
y wife and I own five senior homes in our self-directed IRAs. We're concerned about how to transfer them to our two sons after we die, given the new IRS rules requiring non-spouse beneficiaries to withdraw inherited IRA funds within 10 years. The total value of these properties is around $1.75 to $2 million.

    The SECURE Act of 2019 changed the rules for IRA beneficiaries, eliminating the ability to "stretch" distributions over a beneficiary's life expectancy. Most non-spouse heirs must now fully withdraw assets from an inherited IRA within 10 years of the original owner's death. If the account holder had already begun taking required minimum distributions (RMDs), the beneficiary typically continues annual withdrawals through years 1 to 9.

    In our case, our sons will likely need to withdraw the full value of the IRA within 10 years of either my death or my wife's. They may also be required to take RMDs during the first nine years, depending on our ages when we pass away. There is no exception for the RMD requirement or the 10-year rule just because the assets are not liquid.

    Distributing real estate from an inherited IRA can be complex. If our sons want to transfer ownership of the properties directly, they will need to do so through an in-kind transfer. This means moving the assets directly to their taxable brokerage account without selling them, allowing them to receive the property itself rather than the cash proceeds from a sale.

    To facilitate this process, we should contact our custodian and let them know what we intend to do. They can provide specific step-by-step instructions for handling in-kind transfers of real estate. This will involve appraising the property's fair market value, taking an in-kind distribution, and updating the deed to reflect ownership changes.

    An in-kind distribution of real estate is still treated as a taxable distribution, with our sons including the fair market value in their ordinary taxable income. They should work closely with their financial planner, tax advisor, and IRA custodian to ensure they have the liquidity to pay the tax bill, which could be substantial.

    It's essential for our sons to be aware of the prohibited transaction and disqualified persons rules that apply when an SDIRA owns real estate. They must take care not to run afoul of these regulations.

    Ultimately, our sons will need to empty the inherited SDIRA within 10 years by transferring ownership of the real estate or selling it while it's held by the IRA.