Non-spousal beneficiary distribution
I have a client who is not yet 70.5 and therefore has not yet begun her RMD. Unfortunately, doctors have given her less than a year to live. Her beneficiaries are her two children who will split the IRA 50-50. Her children are 36 & 38.
It appears that the IRA owner will pass before her RMD begins. Am I correct in that when her children receive the IRA and it’s been properly titled, they will have to take an RMD and the first year will be calculated on the Uniform Lifetime Table based on their mother’s age when she passed, but that each year after the RMD will be determined using the child’s age?
Thanks
Brooks5
Permalink Submitted by Alan Spross on Mon, 2010-05-10 20:07
Partially correct. The key date is the RBD, which is April 1st of the year following the year your client reaches 70.5. If client passes PRIOR to that date, the beneficiaries do NOT have to take an RMD for the year of her death. But if she passes on or after the RBD, then the RMD for the year of her death is based on the age she would reach that year if she lived all year. The uniform table is used for that year’s RMD.
For years following her death, the beneficiaries will use the single life table using their ages in the year following her death. The divisor is reduced by 1.0 for each year thereafter. If they create separate accounts for each beneficiary prior to the end of the year following owner’s death, they can each use their own respective life expectancies for their RMDs. If they fail to create the separate accounts by the deadline, the age of the oldest will apply to both beneficiaries.
The 5 year rule is also an option for a beneficiary if the owner passes PRIOR to the RBD.
Permalink Submitted by Jeff Mose on Mon, 2010-05-10 20:47
Thanks Alan. As the owner is 68 and is not expected to live to the RBD, her children who are in their mid-30s will follow the Single Life Table and will begin taking a distribution based on their respective age (as long as each has established their own account) and the distribution must be taken by Dec. 31st of the year after their mother passed.
Permalink Submitted by Alan Spross on Mon, 2010-05-10 21:35
Correct!