Dist from an Bene IRA
I have a client that’s sister died and left him her BD Ira. Does he have to take it over 5 years or are there other options?
I have a client that’s sister died and left him her BD Ira. Does he have to take it over 5 years or are there other options?
Permalink Submitted by Alan Spross on Mon, 2012-12-10 19:02
The deceased sister was the beneficiary and client is therefore the successor beneficiary as I understand your question.
If so, the client must continue the RMD schedule used by the sister. The 5 year rule would only apply if the sister had elected the 5 year rule. If the sister was taking life expectancy RMDs, her divisor would continue to be reduced by 1.0 every year. To find out the sister’s divisor check with the executor, her tax preparer, or the IRA custodian. It should have been based on sister’s attained age in the year following IRA owner’s death and then reduced by 1.0 each year after that.
Permalink Submitted by Rick Tenison on Mon, 2012-12-10 19:40
She had not started taking dist yet. She was only 66 as was her deceased husband.
Permalink Submitted by Alan Spross on Mon, 2012-12-10 20:21
Well, this may fall under a special rule.
Husband passed prior to age 70 and left IRA to spouse. Spouse was not required to take RMDs until her husband would have reached 70.5 and maintained this IRA in inherited form (as beneficiary).
Wife then passes after naming sister as her successor beneficiary and before surviving spouse had reached the end of the year her husband would have reached 70.5.
If the above situation applies to your case, your client will be treated as a designated beneficiary and her sister would be treated as the IRA owner for RMD purposes. This would allow your client to use her own life expectancy for RMDs starting in the year after she inherited and based on your client’s age at the end of that year.
The logic behind this rule is not to punish a successor beneficiary (usually a child) when the original spousal beneficiary could have assumed ownership but chose not to. The successor beneficiary (your client) then would use the same RMD rules as if her sister HAD assumed ownership and named your client as her designated beneficiary.
Pub 590 covers this situation in two paragraphs:
1) “Surviving Spouse” on p 35
2) “Death of Surviving Spouse” on p 34.
Also, note that if your client’s sister missed the year her husband WOULD HAVE reached 70.5 and failed to take her RMD as beneficiary, she would default to ownership of her bene IRA. As the owner, your client would also be able to take life expectancy RMDs. This is another scenario under which your client would be treated as a designated beneficiary rather than a successor beneficiary.
Does either of the above describe your client’s situation or do we have something different with respect to the prior IRA situation?
Permalink Submitted by Rick Tenison on Mon, 2012-12-10 21:35
Perfect…thank you