Inherited IRA RMD calculation
IRA owner dies in 1994, daughter inherits IRA.
When she goes to take her first RMD in 1997 do you use her age in 1997 or from 1996 to look on table C to get the factor?
Is it the beneficiaries age in the year of death or the age of the first RMD?
Beneficiary became a client of mine in 2009 and I am trying to get the correct factor to use for this year.
Permalink Submitted by Alan Spross on Wed, 2010-09-22 20:15
Her first RMD should have been in the year following the year of death, not 3 years later unless she was using the 5 year rule. But RMD rules were updated in a 2002 IRS ruling. Under that ruling, you are correct that you need to determine the current divisor. Use Table I (Single Life Expectancy) and determine the beneficiaries age attained in the year following death (ie 1995?). Then reduce the divisor by 1.0 each year. For example, if the beneficiary reached 45 in 1995, the divisor for that year would have been 38.8. For 2010, that divisor would be reduced by 15 to 23.8. The 2009 RMD waiver does not change this statement.
I assume here that she was a named beneficiary on the IRA agreement rather than inheriting through owner’s estate.
Permalink Submitted by Michael Clancy on Wed, 2010-09-22 20:49
Thank you very much for the reply. My mistake on the years (typo). The year of death was 1996, not 1994.
Permalink Submitted by Patricia Angus on Mon, 2010-12-27 20:31
Same facts — 1994 death. but IRA owner has several children ranging in age from 43 to 30. Youngest takes distribution in 2010 – what age does she use for calculation – oldest or youngest (in either case, using age in 1995, minus one year for each year since then).
Permalink Submitted by Alan Spross on Mon, 2010-12-27 21:59
Current rules released in 2002 indicate that if separate accounts for each individual beneficiary are created by the end of the year following the year of death, each beneficiary uses their own single life expectancy. If the separate accounts were not created in time, all of them must use the single life expectancy of the oldest individual beneficiary.
When the 2002 rules were released, a new mortality table was also released and starting in 2003, beneficiary RMDs were reconstructed using the new table. If each beneficiary under the 1994 rules was able to use their own life expectancy, each beneficiary would then use the new table to determine the divisor in 1995 and reduce the divisor by 1.0 each year thereafter. If a new client has been using their own life expectancy all along, I would just assume that was properly established in 1995. If they were using the age of the oldest, then whatever deadlines that applied prior to 2002 were apparently not met, and they could not change over at this point to the separate account rules without the IRS inquiring what evidence existed back in 1995 to allow them to use their own life expectancies.
In other words, the 2002 changes only allowed a change of mortality tables and in cases where the 5 year rule might have been in effect for deaths in 1997 and later, it allowed those people to change over to life expectancy if they so elected by 12/1/2003. But for a pre 1997 death, only the mortality tables changed, nothing else.