Successor beneficiary question
Husband died in 2023 at age 76 (so post-RBD) with an IRA, and his spouse was the primary beneficiary. The wife died suddenly a month later, also in 2023, at the age of 71 (so pre-RBD). The account is still in dad’s name today – it was never rolled to mom’s name or otherwise changed. The beneficiaries of both mom and dad’s estates (after each other) are the 3 kids. So – what is the RMD situation for these kids?
- Our thought is that you treat dad’s IRA as staying as an inherited IRA fbo mom, since she never rolled it over to her own name. Then upon mom’s death, her estate inherits the account as a successor beneficiary. In this case, the IRA is subject to the 10-year rule (since it went to a successor beneficiary), with RMDs in years 1-9 (since the original owner, dad, was already taking RMDs), and those RMDs are based on mom’s life expectancy (since she was younger than dad).
- The account is currently at another firm, however. They are telling the kids that the account is subject to the 5-year rule (presumably because the estate is a non-designated beneficiary, but we don’t know their logic for certain).
So do you agree with either of those scenarios, or is there a third option we’re missing?
Permalink Submitted by Alan - IRA critic on Thu, 2024-09-26 19:46
Yes, your first scenario is correct. The 2023 RMD must be completed by the estate if not completed by husband prior to passing, and the 2024 beneficiary RMD is based on wife’s age in 2023, with the divisor reduced by 1.0 for 2024 and each year thereafter. After settling the estates, the executor should be able to assign the inherited IRA out of the estate (and the estate can then be closed) to the estate beneficiaries own inherited IRAs, but this will not change the annual RMDs. All inherited IRAs will have to be drained in 2033.
The firm is incorrect because the estate is a successor beneficiary and Mom never became the IRA owner or defaulted into ownership.
There might have been a third option if there was a contingent beneficiary named by Dad and the time limit for the executor of Mom’s estate to disclaim on her behalf had not expired 9 months after Dad’s DOD, but that’s moot now.