Successor Inherited IRA

Submitted by Michael Frontera on Tue, 2019-09-24 14:51

I have a client who inherited an IRA-BDA from her mother. Her mother’s IRA-BDA was originally owned by her spouse who was older than his RBD when he died. She apparently elected to receive it as an inherited IRA (or the custodian did by default). I’m I’m trying to determine how to properly calculate the IRA for my client, the successor beneficiary.



Submitted by Alan - IRA critic on Tue, 2019-09-24 15:44

  • Due to widespread RMD errors, when a sole surviving spouse inherits an IRA and does not do the spousal rollover, inherited RMDs are required. However, if any of those inherited IRA RMDs is just $1 short, the inherited IRA defaults to an owned IRA for the surviving spouse, despite it continuing to show as inherited in the title. This makes a huge difference for a successor beneficiary. If your client can complete an investigation of the calculations and distributions her mother took and if she defaulted to ownership, your client will receive her own life expectancy stretch because she will be treated as a designated beneficiary. However, if mother did not fall short of the beneficiary RMDs, the client will have to continue mother’s RMD schedule as a successor beneficiary to mother. Client is also responsible for the year of death RMD if her mother did not complete it and the year of death RMD would be lower if mother defaulted to ownership in some prior year.
  • Now assuming that mother did NOT fall short of her beneficiary RMD and therefore client is a successor. Client should still back check to determine the proper divisor. For example, mother would use her age in the year after spouse’s death and re enter the Table I chart every year if she was the sole beneficiary. Client would determine the correct divisor for the year of mother’s death, then reduce that divisor by 1.0 for each year thereafter.
  • However, if mother was older than her spouse, her beneficiary RMD would be based on her spouse’s age. This adds complications, so if this was the case, please advise.

Submitted by Michael Frontera on Tue, 2019-09-24 20:07

Excellent insight, thank you. Mother was younger than her spouse, so that does help. Mother took year of death RMD, so that also helps. It’s a relatively small account that the client is satisfied to continue with mother’s divisor minus 1. It sounds like while that wouldn’t be the lowest possible RMD, it would also alleviate her from running back calculations to 2002. I’ll reach back to her to discuss. Thank you.

Submitted by Alan - IRA critic on Tue, 2019-09-24 21:41

Yes, no point in doing lengthy research if you wants to drain the inherited IRA at a faster rate anyway, or if the balance is modest enough that it does not matter. Another strategy utilized by beneficiaries that are not maxing out their own retirement accounts is to take larger inherited IRA distributions and use them to subsidize their own increased contributions to their own retirement plans. If pre tax contributions are made, it will offset the taxes on the larger inherited IRA distributions.

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