Inherited IRA – Eligible EDB beneficiary or use 10-year Secure (not required RMD) to leave to grandchildren

Submitted by helen roland on Mon, 2020-10-12 15:41

75 years old inherited IRA from sister. I don’t want to pay RMD taxes with my income (35% and up tax bracket) It is in Variable and Fixed Annuity in volatile equities—did great. I am qualified as Eligible Designated Beneficiary (EDB). If I keep same Variable Annuity under EDB, I am required to take over lifetime RMD’s yearly and pay the taxes. There would be no penalty or surrender charges if I closed out with trustee to trustee to another Inherited IRA institution account.
Does it make sense to go into a 7 year Annuity Contract and do the Secure 10 year withdrawal? Since I am not required to take yearly RMD’s over 10 years, I would leave in for 10 years and no withdrawals and make market gains. After 10 years I would have to cash out and pay maximum tax bracket, and adding to my estate. If I pass within 10 years never taking any distribution (death rider I will never lose my initial investment if market dropped), can I leave to my 4 grandchildren, who are now 3, 5, 6 and 8 being in lower tax bracket than my son? They cash in or can they also use their inherited IRA from my inherited IRA and do the 10-year Secure? Either way, be in a lower tax bracket than leaving to my son?
Should I do the EDB RMD over lifetime withdrawal and pay yearly tax, or open new 7 year Annuity contract using the Secure 10-year rule?



Submitted by Alan - IRA critic on Mon, 2020-10-12 22:34

  • You are an EDB, which means you must take annual beneficiary RMDs using Table 1. There is no option for the 10 year rule for you or for you to decline EDB treatment. This is regardless of whether you change annuities or IRA custodians. When you pass you named beneficiaries will all be subject to the 10 year rule. They do not complete your remaining life expectancy. Does not matter who you name as your beneficiary.
  • I assume you are an EDB by being not more than 10 years younger than the sister that passed. That is usually advantage unless you are 80 or older, in which case your LE is less than 10 years and the 10 year rule would have been better. While you cannot opt for the 10 year rule, if you are older than you sister there is some question whether you might be able to use her remaining LE instead of yours as was possible for LE beneficiaries in the past since her LE would be longer than yours. The IRS has not yet clarified this. Either way, you would have annual RMDs that will be taxable, with no option to not to take your RMD each year as would be possible under the 10 year rule.

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