RMD for a Custodian under UTMA beneficiary

Submitted by Tom Reiter on Sun, 2015-08-02 14:13

Two part question. First, Is this a proper estate plan senario for naming a minor grandchild as a contingent beneficiary of a tradional IRA: Michael Doe (as a minor) under the New Jersey Unifrom Transfers to Minors Act until age 18, Thomas Doe as custodian. Secondly when the Primary beneficiary (Spouse) passes and the minor grandchild inherits the tradional IRA, WHO would be used for the RMD table, the child’s age or the Custodian’s age? Thank you, Grandpop.



Submitted by Alan - IRA critic on Sun, 2015-08-02 17:14

  • Yes, subject to NJ law you could list the UTMA beneficiary as contingent beneficiary, although I would omit the “until age 18” as that is redundant with the state UTMA provisions and most custodians would probably not want it included.  If the spouse does not pre decease or disclaim the IRA, the contingent beneficiary will not inherit. If the spouse accepts the IRA, then they must establish their own succesor beneficiary or successor with new contingent.
  • When the spouse passes, the named beneficiary of the surviving spouse will have RMDs determined by what the surviving spouse does. If surviving spouse rolls it over to their own IRA and names a beneficiary, the beneficiary will use their own single life expectancy. This also applies if the surviving spouse is maintaining the IRA as inherited rather than owned, and passes prior to the end of the year where RMDs are required. A sole beneficiary spouse does not need to begin RMDs until deceased spouse would have reached 70.5. However, if the surviving spouse continues to take inherited IRA RMDs and then passes, the beneficiary of the surviving spouse will not be a designated beneficiary and will have to continue the RMDs the surviving spouse would have taken. In other words, it is critical that the surviving spouse roll the inherited IRA into their own IRA when inherited IRA RMDs begin.

Submitted by Tom Reiter on Sun, 2015-08-02 21:43

Thank you for the advice on naming our minor contingent beneficiary.  There will be two minors out of our eleven grandchildren that we both have named as contingent beneficiaries on our Vanguard traditional IRAs.  We both are 80 and are taking our RMDs.  I was concerned about how the minor UTMA accounts will handle their RMDs. Will the requirement fall on their parent, our son, as the Custodian using his age to determine the yearly RMD or will the minor’s age be used.  Both of the minors have the same parents.  Should the father be named Custodian for Michael Doe and the Mother be named Custodian for Mia Doe?  Can one parent be named for both?   Each of us as surviving spouses WILL roll their inherited IRA into their own existing Vanguard IRA.  Both of our accounts have identical beneficiaries named.  

Submitted by Alan - IRA critic on Sun, 2015-08-02 23:19

IF the IRA goes to minor beneficiaries per the conditions stated in my earlier post, the custodian of the UTMA account will be responsible for completion of the small RMDs. RMDs to the custodians will be very small because if they inherit while minors, their RMDs will be a very small % of the inherited IRA value. Again, the custodian’s age is immaterial in calculating the RMD, but they will be managing the request for the RMD distribution and coordinating with whoever is responsible for filing the children’s tax returns to be sure the RMD income is reported. One parent can certainly be named as custodians for each child. I would think in most cases, the surviving spouse will accept and roll over the inherited IRA, so the GCs will not inherit anything until the last spouse passes. The last living spouse would normally disclaim only if they are sure they will not need the funds for living expenses, long term care etc.

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