Large Bene IRA Options for EDB
The client has a sizable Beneficiary IRA that was inherited in 2020. The client is an Eligible Designated Beneficiary (EDB), so we’re able to stretch the distributions over their lifetime. The factor at the time of inheritance was 14.1. My question concerns the beneficiary Required Minimum Distributions (RMDs), which are still sizable at $300,000. However, after 14 years, subtracting one each year, the RMDs essentially deplete the account as the factor turns “negative.” This seems unusual, but I suppose that is the expected outcome—that Beneficiary RMDs eventually deplete the Beneficiary IRA. Is that correct?
Permalink Submitted by Alan - IRA critic on Wed, 2024-05-29 18:00
Yes, a non spouse beneficiary IRA is depleted at a much higher rate than an owner’s IRA. Note that the initial divisor is based on the beneficiary age in the year following death. That initial divisor is then reduced by 1.0 each year. However, the RMD tables changed in 2022, so the initial divisor must be re determined for 2022 as if the new tables had been in place. This should slightly increase the time before the divisor drops below 1.
Also, the RMDs will differ if the decedent was more than 1 year younger than the beneficiary. If that is the case here, please advise.
Permalink Submitted by brcwm on Thu, 2024-05-30 17:39
I misspoke, the re-determined factor using new tables was 14.1 as of the year after death.
In this case, the client was a twin.
Permalink Submitted by Alan - IRA critic on Thu, 2024-05-30 20:22
The 2022 divisor is then 13.1, then 12.1 for 2023 and 11.1 for 2024 etc.