Clarification regarding an inherited IRA’s RMD

Submitted by Edward W. Jew Jr. on Wed, 2014-04-30 16:54

Information in the May 2014 issue of Ed Slotts'” IRA Advisor” from the excerpts of
Micheal Jones book, “Inheriting an IRA”, differs from my interpretation as to calculating
the RMD of an inherited IRA.
The planning sources for me have been ED Slotts’ books: “Retirement Savings Time Bomb”
(2003),”Your Complete Retirement Planner”(2007)and the “Ira Advisor” since 2005. I have not read the 2014 Edition of his “Retirement Decision Guide”.
My IRA scheme has been:
My wife and I are in our mid 80’s- our children are in their mid 50’s. She has an TIRA
and I have a TIRA and Roth IRA. The Beneficiaries are the Spouses and the children are the Contingent Beneficiaries. She and I began RMDS at age 70/1-2 using the Uniform
Table 111.
Assuming that I die first,she will treat my IRAS as her own, designate the children as Beneficiaries and name new Contingent Beneficiaries. When she dies two years later,the
children are to request the Custodian to split the accounts into two separate and equal
accounts and rename them-(Owner’s name&IRA-date of death–FBO Son’s or Daughter’s name
Beneficiary & SSN). The RMDS for these Inherited IRAS would begin in the year following my wife’s death.
The RMD is computed by each of the Non-Spouse Beneficiaries using his/her age as of their birthdate in the year following my Wife’s death and consulting the Single Life Expectancy Table I for the ADP. That ADP is decreased by the number one for each subsequent year. These Non-Spouse Beneficiaries may not recalculate.
According to Mr. Jones’ example:
1-If the IRA Creator dies after reaching his/her RBD, then each year the Non-Spouse
Beneficiary who has inherited that IRA must perform three steps to determine the ADP.
Step 1- use the Single Life Table for the age of the beneficiary in the year
after the Owner’s death for the ADP.
Step 2- Use the Single Life Table for the Owner’s age in the year of his/her
death for the ADP minus the number of calendar years since that death.
Step 3- The ADP is the larger of Step 1 or 2.
2- For subsequent years that Non-Spouse Beneficiary consults the Single Life table
for the ADP.

This RMD calculation differs from that which I have used in my planning in that it uses yearly recalculations by the Non-Spouse Beneficiary for the ADP. I have had the
understanding that such action was not permitted.
Hence, I need more explanation to understand this matter of Inherited IRA RMDS.



Submitted by mk foss on Wed, 2014-04-30 17:14

The example is dealing with the possibility that the beneficiary is older than the deceased IRA owner. If that’s the case, the deceased owner’s life expecancy factor is used instead of the factor determined by the age of the beneficiary. 

Submitted by Edward W. Jew Jr. on Wed, 2014-04-30 21:03

Thank you for the prompt reply. I have two questions– 1-Have I the correct interpretation in the schema I described as to the processthat the Non-Spouse Beneficiaries, who are younger than the deceased Owner, follow as to splitting and renaming the Owner’s account,calculating the ADP for the initial RMD as well as for subsequent years? 2-In the excerpts from Mr. Jones’ book there is mentioned the10% penalty on IRA withdrawals before age 59 1/2. Being that our Daughter and Son are in their mid 50’s and should my wife andI die within the next two years, is this a matter of concern about their taking the RMD? I have had the belief that the 10% penalty doesnot apply to RMDS..

Submitted by Edward W. Jew Jr. on Wed, 2014-04-30 22:14

Refer to the above questions about IRA RMDS that followed the answer from MGTF4CPA at 13:14.

Submitted by Alan - IRA critic on Thu, 2014-05-01 00:21

  1. Yes, you are correct. There is no recalculation of the ADP after the children’s first RMD year because the divisor in Table I for the first year is simply reduced by 1.0 for each successive year. Therefore, Table 1 does not need to be checked for any new divisors. The title of the non spouse inherited IRAs must include the name of the decedent and the beneficiary in no particular order. The IRA Custodian will have some input on the format for the retitled IRA. If the year of death RMD has not been completed by the owner, the beneficiaries must complete that RMD and it is taxable to the beneficiaries.
  2. There is never a 10% penalty on an inherited IRA since all distributions are coded as death distributions (code 4 on the 1099R). The penalty only applies to the original OWNERS distributions prior to age 59.5. You are correct that the penalty does not apply to RMDs for either the owner or the beneficiaries. It could only apply to distributions that are NOT RMDS if taken by the owner before 59.5.
  3. IF either of you has basis in your TIRAs from non deductible contributions that are documented on Form 8606, the beneficiaries inherit the remaining basis and will file an 8606 with their own tax returns. Their RMDS and other distributions will then be partially non taxable. And they need to name their own successor beneficiaries right after they inherit.

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