Correct Life Expectancy Table for the “ghost” rule.

Submitted by Scott Amis on Thu, 2024-10-03 01:29

My wife inherited an estate-owned IRA from her aunt who passed in February 2024 at the age of 82. You have published an article titled “What’s the process when a trust (or estate) is IRA beneficiary?” that states that RMDs are based on the deceased IRA owner’s “remaining single life expectancy”, had he survived. However, our CPA and the IRA account holder (Cetera) say to use the “uniform lifetime” table. For this case, the “single life expectancy” is 9.9 years and the “uniform lifetime” is 18.5 years. Please confirm the correct table to be used. Also, is this likely one of those cases where the IRS is not strongly enforcing due to all the confusion out there?



Submitted by Alan - IRA critic on Thu, 2024-10-03 11:18

The Secure Act did not change any of the RMD rules for non individual beneficiaries (estates, NQ trusts, charities). In this case, where the ghost rule applies, the single life table for decedent’s age attained (or would have been attained) in the year of death if 9.9, is then reduced by 1.0 for each year thereafter, so an inherited IRA would last for 10 years. It’s bizarre that any of these people mentioned the Uniform Table, as it has never applied to non spouse beneficiaries or anyone other than a spouse beneficiary that elects to assume ownership of an inherited IRA from their spouse. The situation here is nowhere close to that. Cetera apparently does not have a dedicated unit that only handles beneficiary transactions. The CPA not knowing this is even more surprising.

Also, note that the estate is also responsible for completing aunt’s 2024 RMD if she did not do so before passing and with a DOD in February, good chance that she did not.  The new deadline for completing the year of death RMD is 12/31 of the following year, so there is plenty of time. This RMD can be completed from wife’s inherited IRA if she can complete the assignment, and that would avoid a distribution to the estate which would have to be reported on the estate 1041.

Submitted by Scott Amis on Thu, 2024-10-03 15:24

Thanks for the response. For some reason Cetera is telling us that the IRA has to remain as an estate account and any distributions have to flow through the estate. And her aunt’s final RMD was issued to the estate with tax withholdings against the estate Tax ID (EIN) and will now have to be reported on the estate 1040. And since the estate cash accounts were closed and transferred into my wife’s name, the distribution went into her non-estate account. Cetera is saying any further distributions will pass through the estate with no tax withholdings and handled with a K-1 form to transfer tax responsibility from the estate to my wife’s SSN. This preferred method by Cetera will result in the estate staying open until the IRA has been fully withdrawn. As you stated in your response to my other question, it makes no sense to leave the estate open (no bills, taxes, etc.) unless it is a loop hole to remain on the 18.5 year Uniform Lifetime table. Would that possibly be the case? It may be that Cetera just doesn’t want to set up an Inherited IRA as you stated in your response to my other question. The main issue for us is not being able to establish successor beneficiaries if it remains an estate IRA. We may have to transfer the estate IRA to another firm as you also suggested. BTW, we are talking about a $1.2M IRA. Thanks so much for your responses, they are very helpful.

Submitted by Alan - IRA critic on Thu, 2024-10-03 16:05

Cetera is certainly not an IRA custodian that knows how to deal with estate IRAs, or they are just choosing to disregard executor assignment requests as a matter of policy. 1.2mm is a large amount and comparing the tax bills for 10% distributions each year for 10 years to a lump sum distribution all taxable in a single year, it may be worth it to retain an attorney to take this up with Cetera if she cannot locate another IRA custodian that will cooperate with an assignment request as mentioned earlier.

Some damage has already been done with the year of death distribution. An IRA beneficiary (estate or otherwise) can decline withholding, but apparently this was not done with the recent distribution? A 1041 will have to be prepared for the estate to report IRA distribution income, and if passed through to the estate beneficiary on a K1 the beneficiary will pay the tax at their lower personal rate. It’s not easy to transfer estate withholding to the beneficiary.

Further, with respect to successor beneficiaries, you are correct that this is another consequence when the IRA custodian does not accept assignments from executors, since a successor beneficiary cannot be named for an estate IRA but could be named if this inherited IRA could be assigned out of the estate to an inherited IRA for your wife.

Add new comment

Log in or register to post comments