Post 2020 Inherited IRA RMD Clarification (subtract 1 from single life table confusion)
Hi,
I have been going under the impression that if a person passed away post 2020 (2022 year of death) and was after RBD, the beneficiary (non-spouse, non-eligible designated bene) uses the Single Life Table based on their age (in the year after death) then subtracts 1 each year as their factor in years 1-9 before depleting the account in year 10. Here is the Slott article: https://irahelp.com/slottreport/alar-least-rapidly-rule/
However, when i view Fidelity’s instructions (https://www.fidelity.com/building-savings/learn-about-iras/inherited-ira-rmd) they simply say a non-spouse, non-eligible designated beneficiary can use the single life table factor each year. It also seems the IRS says the same thing (https://www.irs.gov/retirement-plans/plan-participant-employee/retirement-topics-beneficiary).
Is anyone able to clarify where the Ed Slott team came up with the idea of subtracting 1 from the year after-death single life table factor for the beneficiary? I may have missed if this has been clarified with IRS guidance but any sourcing would also help. I’m an advisor and want to make sure i don’t make mistakes on this going forward.
Thanks so much!
Permalink Submitted by Alan - IRA critic on Tue, 2024-04-09 22:37
Page 45 of the IRS proposed Secure Act Regs clearly states that the designated beneficiary must reduce their first divisor by 1.0 for each year after the first beneficiary RMD year. There are two exceptions, first if the surviving spouse is the sole beneficiary, she enters the table each year (recalculation method). The second exception is when the beneficiary is older and the age of the decedent is used, also with reduction of 1.0 each year. These rules are the same as those prior to Secure, therefore there has been no change in this particular calculation due to the Secure Act, other than the 10 year rule requires this inherited IRA to be drained by 2032.
Further, because the IRS has not finalized the proposed Secure Act Regs, they have waived the penalty for failing to take the 2021-2023 annual RMDs for 10 year rule beneficiaries. It is not clear whether this penalty will be waived again for 2024, but the IRS will probably have to waive it again if they cannot finalize these Regs in the next 6 months. No annual RMDs are required in years 1-9 if the IRA owner passed prior to RBD.
Again, there is no situation where a non spouse beneficiary that is required to take life expectancy RMDs would enter the table each year. They must always use the non recalculation method which requires the annual 1.0 reduction.