IRA BDA Question

Submitted by Kevin O'Hearn on Tue, 2020-12-08 20:38

Hello,

I was wondering if I could get your thoughts on the following scenario:

If a Mom passes away in 2010 with an IRA and her daughter is the beneficiary. She takes RMDs starting in 2011, but she then passes away in 2020 (after the SECURE Act rules have taken effect). She named her estate as the beneficiary of her inherited IRA (so the estate is the second inheritor).

How must the twice inherited IRA in the name of the estate now deplete the assets?

Would they be subject to the 10 year or 5 year depletion requirement?

Any feedback would be greatly appreciated. Thank you.



Submitted by Alan - IRA critic on Tue, 2020-12-08 22:15

The estate becomes subject to the Secure Act, and the IRA will have to be distributed under the 10 year rule. While it could be a problem for some custodians daughter’s executor should be able to assign the inherited IRA out of her estate to an inherited IRA which remains subject to the 10 year rule. But at least the estate could be closed. Note that this is still an interpretation of Sec 401(a)(5) of Secure, and the IRS could issue regulations that change this interpretation.

Submitted by Kevin O'Hearn on Wed, 2020-12-09 15:38

 Thanks Alan.  Why is it the 10 year rule and not the 5 year rule?   If an original depositor died in 2020 and the first inheritor is the estate, the depletion method is 5 years in most cases as the SECURE Act didn’t change the rules for estate beneficiaries. Why would the estate being the beneficiary in this case allow for the 10 year rule? Thank you .   

Submitted by Alan - IRA critic on Wed, 2020-12-09 17:21

  • Because the estate is a successor beneficiary to a pre Secure designated beneficiary, rather than being the beneficiary of the account owner. If daughter had named an individual as her successor beneficiary, that individual would receive a new 10 year distribution rule, and in this case her estate is no different and also subject to the 10 year rule. The following article explains this in great detail. Look for the example regarding “Monica” (Example 6) about 80% through the article. Also note the comment “whoever or whatever”, with whatever including an estate successor.
  • Successor Beneficiary RMDs After Inherited IRA Beneficiary Passes (kitces.com)

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