Permalink Submitted by Alan Spross on Thu, 2009-06-11 19:07
Tom has covered most of the issues.
In addition to the life expectancy distributions, the beneficiary also has the choice of the “5 year rule” under which no RMDs are required, but the entire balance must be distributed by the end of the 5th year following the year of the owner’s death. This option would only be best in certain unique situations. There may be a very few IRA agreements still left out there that actually REQUIRE use of the 5 year rule, but they are not competitive so are likely to be few and far between. If you encounter one, see if they will allow a direct transfer to another IRA custodian. An inherited non spouse IRA account cannot be rolled over, but can be moved to another custodian by direct trustee transfer. Any check made out to the beneficiary would be fully taxable in the year distributed, since no rollovers are permitted.
Finally, note that recent tax relief legislation waived all RMDs for calendar year 2009. If owner died in 2008, the first RMD would not be due until 12/31/2010. If the 5 year rule were to apply, the end of the 5th year would then be deemed to be 12/31/2014.
Permalink Submitted by Rick Tenison on Thu, 2009-06-11 18:42
The IRA owner was 44 at death. Would there still be an RMD?
Permalink Submitted by Alan Spross on Thu, 2009-06-11 19:07
Tom has covered most of the issues.
In addition to the life expectancy distributions, the beneficiary also has the choice of the “5 year rule” under which no RMDs are required, but the entire balance must be distributed by the end of the 5th year following the year of the owner’s death. This option would only be best in certain unique situations. There may be a very few IRA agreements still left out there that actually REQUIRE use of the 5 year rule, but they are not competitive so are likely to be few and far between. If you encounter one, see if they will allow a direct transfer to another IRA custodian. An inherited non spouse IRA account cannot be rolled over, but can be moved to another custodian by direct trustee transfer. Any check made out to the beneficiary would be fully taxable in the year distributed, since no rollovers are permitted.
Finally, note that recent tax relief legislation waived all RMDs for calendar year 2009. If owner died in 2008, the first RMD would not be due until 12/31/2010. If the 5 year rule were to apply, the end of the 5th year would then be deemed to be 12/31/2014.