Inherits an Inherited IRA

Submitted by Mark Hilgenberg on Thu, 2020-04-09 20:27

In 2010 husband dies, the wife takes his IRA as an inherited IRA (she was 2 years older) , now she passed and her son is the beneficiary.

Will he need to continue her RMD factor or use his, also, how do we title the account?

Thanks!

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Permalink Submitted by Alan - IRA critic on Thu, 2020-04-09 21:05

This could be complex. FIrst, it needs to be determined if the wife completed her full beneficiary RMD each year. The first time she didn’t she becomes the owner of the inherited IRA by default. That means her son would be a designated beneficiary instead of a successor beneficiary. If she was the sole beneficiary of his IRA, her annual RMDs did not start until the year her husband would have reached 70.5.
Now she passes, but was it this year subject to the Secure Act, or prior to 2020? Either way, there is no RMD for 2020 due to the CARES Act, but the DOD matters beyond 2020.
As for title of the inherited IRA, whatever the custodian requires will work as long as it includes the name of the son as beneficiary and the decedent he inherited from which is his mother. For the title it does not matter if he inherited an inherited IRA or an IRA that his mother owned by the default rule.
Note: Once mother had to start RMDs, she should have assumed ownership and her RMDs would have been much lower.
Please advise on those two dates.

Permalink Submitted by Mark Hilgenberg on Thu, 2020-04-09 21:21

Hi Alan,Thank you so much.Point1. I assume she took an RMD each year from the day she inherited it but I will try and find out. The account title still says inherited IRA of decessed husband. 2. She died this year.3. Yes, the custodian is saying to use the mother as decessed and ther son as beni using his DOB to calculate the RMD. If I understand you, this is correct since the inherited IRA was a spousal, not a non-spouse inherited? So we can drop dad completly now?4. I agree, not sure why they never changed it over. I am not sure which other dates you are asking for?Thanks!

Permalink Submitted by Alan - IRA critic on Thu, 2020-04-09 22:10

The key detail here is that she passed in 2020 under the Secure Act. Therefore, the son will be subject to the 10 year rule and the ages of the parents do not matter. Under the 10 year rule there are no annual RMDs, but the entire inherited IRA must be drained by 12/31/2030. Rather than having a large taxable lump sum distribution in 2030, the son might want to develop a plan to still distribute some each year, but he does not have to. The custodian does not seem to be factoring in the Secure Act here and also is treating mother as if she was the owner. That’s two errors on their part.

Permalink Submitted by Mark Hilgenberg on Mon, 2020-04-13 16:20

Thanks again Alan, that makes sense. Do you have a sugestion on how we title the account?

Permalink Submitted by Alan - IRA critic on Mon, 2020-04-13 17:00

Yes, see point 3 of my first 4/9 reply.