Pre-RMD Age Death and Minor Beneficiary
The father dies at age 54, before RMDs. Born 5/9/1969. Dies 3/2/2024. Has a $200K 401K Plan where his minor son is beneficiary. After death the 401K is rolled into an Inherited IRA for the son. Son was born 5/7/2012. Son’s mom is raising him (parents were divorced). I assume the full amount has to be distributed by age 31 of the son? Are RMDs required in the meantime? Would the RMDs before age 18 be subject to kiddie tax at the mom’s rates? What would be the best approach to get this money to son and minimize the tax hit (not knowing what son’s tax bracket will be when they are older)? Thank you!
Permalink Submitted by Alan - IRA critic on Wed, 2025-05-21 16:01
Yes, the inherited IRA must be drained by the end of the year when child reaches 31. In the meantime the annual EDB beneficiary RMDs must continue until that final year, even though the 10 year rule kicks in at age 21.
Because of the young age, the annual RMDs barely reach the kiddie tax threshold of 2600 for 2025, although any kiddie tax will be due through age 23 if the child remains a dependent and attends college. Mother’s tax rate should be considered when determining the kiddie tax rate to determine if the annual distributions should be increased above the RMD to equalize the taxable distributions over the 19 years remaining until the child reaches 31. If the child does not attend college after age 18, his marginal tax rate after that time might be lower than mother’s rate for the next 6 years, and if so the child could limit distributions to the RMD amount until that time, then increase distributions until age 31 sufficiently to avoid a large taxable distribution in age 31.