Beneficial IRA Owner Spouse Dies Prior to RBD

Submitted by Mhotchkiss on Tue, 2019-04-02 20:33

Spouse (age 50) inherits IRA. Maintains Beneficial status in order to avoid 10% penalty on distributions. Names children as beneficiaries on beneficial IRA. Spouse dies at age 53. What life expectancy do children use to stretch? I believe it is the life expectancy of the parent at death, but since they hadn’t begun RMDs, I’m not sure. -m

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Permalink Submitted by Alan - IRA critic on Tue, 2019-04-02 23:22

A sole beneficiary spouse does not have to take beneficiary RMDs until the deceased spouse would have reached 70.5. If the beneficiary spouse passes prior to the date that such RMDs must be distributed, the successor beneficiaries are treated as designated beneficiaries for purposes of their RMD determination. As designated beneficiaries they could use their own single life expectancy using their age the end of the year following the year of the beneficiary spouse’s death. They would need to establish separate inherited IRA accounts by that same date to use their individual ages, otherwise they must both use the age of the oldest.
There is another provision that could affect them. If the surviving sole beneficiary spouse fails to take a full RMD required in any year, they default to ownership status of the inherited IRA. As the owner, the children are treated as designated beneficiaries with the same options as above.
The situation in which the children lose the stretch, would be if the surviving spouse begins taking beneficiary RMDs as required, does not do a spousal rollover, and passes without defaulting to ownership. In that case, the children are successor beneficiaries and most continue the RMD schedule of the surviving spouse, losing much of their stretch.

Permalink Submitted by David Mertz on Wed, 2019-04-03 03:00

A sole beneficiary spouse who dies before December 31 of the year that the spouse is required to begin beneficiary RMDs is automatically treated as the IRA owner.
As a result, the children have the choice of the 5-year rule or life-expectancy distributions. If the IRA is split into a separate account for each child’s share by December 31 of the year following the year of the spouse’s death, each child can use their own age for determining life-expectancy RMDs, otherwise the age of the oldest must be used.