2nd generation beneficiary inherited IRA
I have a client who inherited an IRA from their mother, who in turn inherited from her daughter (client’s sister). The sister that died was in her early 60’s when she died (3 years ago) and left the IRA to her mother who has been taking RMD’s based on her life expectency, until she passed away in 2009. Now the client has inherited this inherited non-spousal IRA. Does she have to take the RMD’s based on her mother’s schedule? I beleive I have read that you cannot do a second generation stretch, so I assume that she could use the mother’s life expectency at age of death or 5 years for RMD’s? Any thoughts?
Permalink Submitted by Alan Spross on Wed, 2010-01-13 20:35
That is correct. A successor beneficiary to a non spouse beneficiary does NOT get a new stretch. The client will have to continue the RMD schedule proper for her mother to have used. Since the sister passed prior to her RBD, the 5 year rule may still be available, and for counting the years 2009 is omitted due to the waiver. Depending on when the sister passed, and if mother had been using her life expectancy, the client will have to figure mother’s age in the year following sister’s death to determine the RMD divisor, and then continue to reduce that divisor by 1.0 each year thereafter. Since 2009 does not count , the divisor proper for 2008 should be reduced by 2.0 to determine the 2010 divisor.
If her mother planned to use the 5 year rule, your client will not be able to change over to life expectancy of mother without paying the excess accumulation penalty, so using life expectancy may not be useful depending on what mother had elected to do.
Permalink Submitted by Jon Aldrich on Wed, 2010-01-13 20:39
Thanks for the response. I am glad to see I was on the right track.