EDB Options
Client inherits IRA from friend. Friend was not beyond RBD at time of death in 2022. Client was less than 10 years younger than decedent. I believe client is therefor an EDB. Client would have the option of stretching the payments over their remaining life expectancy or choosing the 10 year rule. If choose the 10 year rule, no Required Distributions in years 1-9 but all out in year 10. If choosing stretch, must start taking RDs based on age in 2023 and reducing divisor by 1 each year. If client did not take a distribution in 2023, does that mean they are defaulted to 10 year rule? Is there a required declaration at some point? If not, can they still choose life expectancy and file 5329 for 2023 and catchup on missed distributions? Thanks in advance – m
Permalink Submitted by Alan - IRA critic on Fri, 2024-09-13 14:43
The final Regs are mostly drafted for qualified plans, which in this situation may have the LE option or a mandatory 10 year rule or may provide for a beneficiary election. Such an election must be made by the end of the year following the year of death, or the plan default rule will apply. Further, this election is irrevocable once made.
It is expected that IRA agreements will automatically use the LE rule (ie. EDB would have to opt into the 10 year rule for it to apply). The same deadline will apply to notifying the IRA custodian if opting into the 10 year rule.
But these Regs are not final until 2025, so a reasonable interpretation of the prior Regs OR the new Regs could be used during the period from 2020-2024. As such, the client should be able to retain EDB treatment and make up the missed 2023 RMD and file a 5329. Anyway, the IRA custodian cannot force out a total RMD in year 10 like a qualified plan might, therefore the client need not fear of that happening.
Permalink Submitted by Mhotchkiss on Mon, 2024-09-16 09:57
Great, thank you. – m