Secure Act – Traditional IRA to Estate

Submitted by scott seamon on Wed, 2021-03-24 23:27

Facts:
In 2021, the IRA owner passed after her required beginning date. At the time of death the owner’s estate was the sole beneficiary of her IRA (IRA beneficiary mistakenly not transferred to the IRA account) and pursuant to the IRA’s owner’s last will and testament, her son is the executive and sole beneficiary.

Question:
1. Does the 5 year rule apply?
2. or, can the IRA be transferred to an inherited IRA for the benefit of the estates beneficiary (son) without any adverse tax consequences to allow the termination of the estate.
3. Would the 10 year rule apply to question 2, if so, I assume any distribution twould be taxed as ordinary income to the son’s tax returns.

Thank you for your help.



Submitted by Alan - IRA critic on Wed, 2021-03-24 23:47

The 5 year rule only applies for death prior to RBD.
The will executor can have the inherited IRA assigned to himself out of the estate. Most custodians will cooperate with this request, but some still resist.
Since death occurred after the RBD, the distribution period for the inherited IRA will be the remaining single life expectancy of the decedent using Table I. The 10 year rule does not apply, and there is a LE RMD each year. Such distribution will be made directly to the son and taxable to the son at son’s personal tax rate.
The son (or estate if IRA not assigned) is responsible for completing the 2021 year of death RMD if the IRA owner did not complete it. 

Submitted by scott seamon on Thu, 2021-03-25 00:03

Alan,Thank you very much,  would you be able to provide the IRS reference that applies to # 3?

Submitted by scott seamon on Thu, 2021-03-25 00:16

Alan, I believe this only applies prior to 2020, I found this on  IRS.gov What’s New for 2020Required minimum distributions (RMDs). For distributions required to be made after December 31, 2019, the age for beginning mandatory distributions is changed to age 72 for IRA owners reaching age 70 ½ after December 31, 2019. The required beginning date for IRA owners who haven’t reached age 70 1/2 by the end of 2019 is April 1st of the year following the year of the owner’s 72nd birthday.Modification of required distribution rules for designated beneficiaries. There are new required minimum distribution rules for designated beneficiaries upon the death of the IRA owner after December 31, 2019. All distributions must be made by the end of the 10th year after death, except for distributions made to certain eligible designated beneficiaries.

Submitted by Alan - IRA critic on Thu, 2021-03-25 00:50

As you can see in Sec 401 (click on that Section) of the Secure Act in the following link, the Secure Act made no changes to the RMD requirements for non designated beneficiaries, only for designated beneficiaries. An estate is a non designated beneficiary, and therefore as was the situation pre Secure, death after the RBD results in RMDs based on the remaining life expectancy of the decedent.
Text – H.R.1994 – 116th Congress (2019-2020): Setting Every Community Up for Retirement Enhancement Act of 2019 | Congress.gov | Library of Congress

Submitted by scott seamon on Fri, 2021-03-26 20:27

Alan, thank you very much for your reply to my inquiry. I received so much miss information from my attorney and CPA regarding the secure act. In fact, a highly recommended estate / tax attorney  that I used after your reply was not even aware that the estate was able to use the decendant life expectancy for distributions. When I showed her your reply she first said that it was not correct, however, she quickly looked into in and corrected herself. You were “Point On”. Thanks again, Scott

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