IRA Beneficiary Dies
This is a beneficiary IRA question:
IRA owner has started taking RMD. RMD taken in 2007
IRA owner dies in 2007.
The IRA is transfered to the beneficiary, a non-spouse younger than 70.
The beneficiary dies in 2008. No distrubution taken in 2008
The IRA is transfered to the new beneficiary, a non-spouse younger than 70.
1) Is there an RMD required for 2008?
2) If so, what divisor do I use? Single life table for the original owner?
3) What is the methadology to use for 2009?
Permalink Submitted by Alan Spross on Thu, 2008-12-11 20:52
Yes, there is a 2008 RMD. It is based on the RMD required of the original beneficiary and uses that beneficiary’s age which would have been attained in 2008 and the single life table. No matter how many successor beneficiaries exist in the future, the RMD for each year will continue to be based on the non recalculated age of the first beneficiary. The divisor is reduced by 1.0 for each year after 2008.
Permalink Submitted by Michael Gauss on Thu, 2008-12-11 20:56
Non-recalculated? You sure?
Permalink Submitted by Al Fry on Thu, 2008-12-11 21:00
Only owners and spouses recalculate, non-spouses never recalculate.
Permalink Submitted by Alan Spross on Thu, 2008-12-11 21:05
Yes, only a sole spouse beneficiary can recalculate. I think the problem is the use of the term “recalculate” here.
Note that “non recalculated” does not mean that the RMD does not change. It means that instead of going into the single life table for a new divisor every year, you just reduce the original divisor by 1.0 each year. You are actual still re calculating the RMD each year, but you are not entering the single life table other than the first year or to re check that you started with the right divisor.
Permalink Submitted by Michael Gauss on Thu, 2008-12-11 21:15
I understand what you mean about recalculation, my problem is not having to go to the table for the divisor.
On the Schwab website it apparently says differently :http://www.schwab.com/public/schwab/investment_products/retirement/inher…
Original owner over 70 1/2, account transferred to beneficiary who is non-spouse. Option 2: Inherited IRA – Life Expectancy Method.
Permalink Submitted by Al Fry on Thu, 2008-12-11 22:05
The Schwab reference yo gave is correct for someone inheriting an IRA from ORIGINAL IRA owner. It is NOT correct for someone inheriting from a non-spouse bene of the original IRA owner. Online sevices can be misleading; Alan cannot.
Permalink Submitted by charles lore on Fri, 2008-12-12 01:44
Michael regarding your 3rd bullet in original question it is incorrect to say “transferred” . The IRA cannot be transferred to a non spouse. What happens is that a beneficiary iRA is established with original owners name still in the title.
Permalink Submitted by Alan Spross on Fri, 2008-12-12 02:46
Michael,
Note that the life expectancy method applies both with or without recalculation. Without recalculation, the divisor is reduced by 1.0 each year and with recalculation, the table is entered each year and the divisor determined directly from the table. Both of these are still considered to be based on life expectancy.
Essentially, the difference in the two methods is that the non recalc method expects the beneficiary to pass based solely on the expectancy in the first year of RMDs. The recalc method looks at the table again each year and assumes that since you lived another year, your remaining life expectancy is actually a little longer than what it was last year, because you survived that extra year. This is a benefit provided to owners and spouses but NOT to non spouse beneficiaries.