How to calculate NON spousal benenficary RMD
Kids inherited IRA from parents who were over 70.5. Do we look up kid’s life expectancy table every year or use kid’s life expectancy at time of parent’s death, then subtract one for each year?
Thanks
Kids inherited IRA from parents who were over 70.5. Do we look up kid’s life expectancy table every year or use kid’s life expectancy at time of parent’s death, then subtract one for each year?
Thanks
Permalink Submitted by tomd37 on Mon, 2010-12-06 17:39
Debbie,
To obtain the correct factor in Table I of IRS Publication 590, I believe you would use the beneficiary’s attained age as of December 31st of the year following the death of the original owner. That factor would be decreased by 1.0 each succeeding year. I am sure someone else will reply if I am incorrect.
Tom D.
Permalink Submitted by Debra Freedman on Mon, 2010-12-06 18:40
Thank you. Any idea how long ago we were supposed to use this minus 1 calculation?
Permalink Submitted by mk foss on Mon, 2010-12-06 19:23
You keep subtracting 1 until the factor reduces to less than 1.0 – then you must withdraw the remaining funds.
Permalink Submitted by tomd37 on Mon, 2010-12-06 19:42
My interpretation of Debbie’s response indicates this might be an IRA that was inherited some time back and possibly the beneficiaries were not using the correct factor when taking thier RMD each year. She said “Any idea how long ago we were supposed to use this minus 1 calculation?” Can you clarify your comment Debbie?
Tom D.
Permalink Submitted by Alan Spross on Mon, 2010-12-06 20:14
If they indeed used the wrong factor resulting in a shortfall in their RMD distributions, they need to recalculate the shortfall and distribute the make up amount ASAP. Then file Form 5329 requesting that the penalty be excused for “reasonable cause”.
A non spouse beneficiary must use a “non recalculated” divisor, ie the 1.0 reduction each year instead of looking up the new divisor each year.
Permalink Submitted by Debra Freedman on Tue, 2010-12-07 20:03
Thank you so much for all of your kind assistance. Here’s what happened. Father died in 2006. Son at age 53 inherited father’s IRA. Beginning 2007, we have been using the Single Life Expectancy by Beneficiary recalculation every year thereafter. After reading the IRS 2009 Publication, we found out that we should subtract 1 from year of death to calculate RMD each year. It appears that 2 methods of calculations were introduced. A retirement specialist from Charles Schwab confirmed with me that both methods are acceptable. I’m curious about which method was introduced first and how did the 2nd method come about if any of my findings are correct.
Permalink Submitted by Alan Spross on Tue, 2010-12-07 20:30
Based on the age of the son, I assume that father passed after his required beginning date. In those circumstances there is only one method to calculate a non spouse RMD, the life expectancy method without recalculation. The Schwab rep was probably referring to the 5 year rule as the other method, but that only applies for deaths PRIOR to the required beginning date.
Fortuneately, the number of insufficient RMDs is limited. 2007 and 2008 are the only years so far since RMDs were waived in 2009.