Inherited IRA RMD Factor Change (Spouse Beneficiary)
Hello,
My client noticed a sharp drop in her Inherited IRA RMD amount for 2024 (over $26,000 less than 2023) and it appears it has to do with the life expectancy factor applied in 2024. The client is the spousal beneficiary of the Inherited IRA and was born in 1944 (80 years old) and the decedent died the year he would have turned age 73 back in 2008.
The recent history of the custodian RMD factors are:
2021: 9.0
2022: 9.9
2023: 8.9
2024: 11.2
A surviving spouse would use the Single Life Expectancy Table and looking at the table for someone who is 80, the factor in 2024 is 11.2, so it appears the 2024 RMD distributed to her is correct.
My question is, can someone explain the changes in the RMD factors over time used by the custodian? Did new life expectancy tables come into effect?
Thanks.
Permalink Submitted by Alan - IRA critic on Tue, 2024-07-30 19:16
Client should have assumed ownership of this inherited IRA years ago, and her RMDs would have been far less. On top of that prior to this year, the beneficiary RMDs used were incorrect and too high. While 11.2 is correct for 2024, her prior RMDs were too incorrectly high. Someone finally caught on this year.
Assuming that this client is and has been the sole beneficiary all along, her RMD divisors would have been 12.6 for 2022, 11.9 for 2023 and 11.2 for 2024. So it appears that for years prior to 2024 the divisors were wrong, perhaps because they were being reduced by 1.0 each year, and that does not apply for a sole spousal beneficiary, who enters the table each year for the divisor.
Still, if you assume that the inherited IRA balance was 300,000 on 12/31/2023 and the correct beneficiary RMD would be 26,786 for 2024, if she assumed ownership of the inherited IRA before taking the 2024 RMD, that RMD is reduced to 14,851 with the Uniform Table. That’s about 45% less than a beneficiary RMD.
If she needed all these prior distributions, exceeding the actual RMD for prior years is not an issue, but if she does not need the full amount of prior RMDs, then much more has been distributed in the past in error and accelerated her tax bills.
She should therefore elect to assume ownership of the inherited IRA ASAP before taking any distributions in 2024. As soon as the balance has been transferred to her new owned IRA, then she can take the lower 2024 RMD.
But if the 2024 RMD has already been distributed, the Uniform Table will not apply until 2025.
Permalink Submitted by Jennifer Weir on Wed, 2024-07-31 12:54
Thank you very much, Alan. The 2024 RMD has already been distributed and the client has not assumed ownership of the IRA as her own, it is still titled as an Inherited IRA.
If she elects to keep the account as an Inherited IRA, then the Single Life Expectancy table will apply in 2025, correct?
Permalink Submitted by Alan - IRA critic on Wed, 2024-07-31 17:45
Yes, correct. But that will produce a much higher RMD than if ownership is assumed. If ownership is assumed this year or next year prior to any 2025 distributions, the 2025 and subsequent RMDs will be much lower.
This could also extend the distribution life of the next beneficiary in some cases, such as when the next beneficiary would otherwise be an EDB if they were not a successor beneficiary.