Non-Spouses (my adults children) Inheriting an Inherited IRA I started taking RMD’s on in 2013 ?
My mother died in 2013.
My sister and I each split her IRA (and ROTH IRA) 50/50 at the time (because we were listed as equal beneficiaries on these accounts.
I’ve been taking RMD’s over MY Life Expectancy since then, but even so, I have quadrupled the $$$ in the account since then.
MY QUESTION IS:
If I die tomorrow (in 2021 = post-SECURE ACT RULES) – and I leave the balances of these accounts to my 2 healthy adult children, do they have to empty out these accounts within 10 years, or do they get to keep taking RMDs based on MY Life Expectancy (which would be another 25 years)?
Page 10 of IRS PUBLICATION 590-b (2020) reads:
DEATH OF A BENEFICIARY. In general, the beneficiaries of a deceased beneficiary (=ME) must continue to take the required minimum distributions after the deceased beneficiary’s death However, the beneficiaries of a deceased beneficiary (=Me again) don’t calculate required minimum distributions using their own life expectancies. Instead the deceased beneficiary’s remaining interest must be distributed within 10 years after the beneficiary’s death, (or in some cases within 10 years after the owner’s death. See “10 -year rule, later.) {* I know for a fact that the 10 year rule does not apply in our situation), – YET – the first part of this seems to contradict the SECURE ACT Rule itself -because THERE ARE NO RMD’s per the SECURE ACT? (the IRS seems to be talking in circles here – surprise, surprise). HELP – what IS the DEFINITIVE ANSWER?
I have scoured the internet and have found numerous contradictory articles on Investopedia, etc., that contradict one another. Please list whatever source/documentation you can when answering this if possible.
THANKYOU!
Permalink Submitted by Alan - IRA critic on Sun, 2021-04-11 01:04
Well, if you read parts of the new Pub 590 B several times, you finally come to the conclusion that the IRS took several months to produce the Pub and still got certain things wrong. This does not bode well for the general public.
The first sentence of the quoted paragraph makes no sense and should be disregarded. Therefore, you continue to take LE RMDs for life. When you pass (if after 2019) your successor beneficiaries get their own 10 year rule. SO if you passed in 2030, they would have to drain the inherited IRA by 12/31/2040 with no annual RMDs until 2040 which becomes a lump sum distribution year.
There are other errors the IRS made in combining the prior rules with the Secure Act changes and editing text. But to provide clarity to the public I think this entire section needs to be redesigned with some flow charts that are much easier to follow than this Pub. One thing that is clear is that certain EDBs can opt out of LE in favor of the 10 year rule. In the past with the 5 year rule it was one and done, yet the Pub suggested that if a beneficiary opts for the 10 year rule, their successor beneficiary might get an additional 10 year rule and that makes little sense. I expect that provision to be revised.
Permalink Submitted by Rob Layman on Tue, 2021-04-13 02:29
https://www.investopedia.com/terms/e/extendedira.aspI found this (full link above) on Investopedia – and the first 3 paragraphs clearly states the exact opposite of what you claim. (you can see why i’m totally confused – the internet is full of erroneous opinions (with no facts to back the up). Here are the 3 paragraphs in questions which seem to indicate that my adult children would be allowed to continue taking the RMD’s I’ve been taking on the Inherited IRA I got from my mother in 2013 – and that my kids would be able to simply continue on the RMD schedule per MY Life Expectency (approx another 25 years ) – rather than their own or the new 10 year rule per the Secure Act. What Is an Extended IRA?An Extended IRA allows a second-generation beneficiary to continue to distribute the assets over the life expectancy used by the first-generation beneficiary, thereby extending the IRA. Also known as a stretch IRA.Understanding Extended IRAsAn individual who inherits IRA assets from the original IRA owner is referred to as the first-generation beneficiary. This individual is able to distribute the assets over his or her life expectancy or the remaining life expectancy of the original IRA owner. If the first-generation beneficiary subsequently dies, his or her designated beneficiary is the second-generation beneficiary. This type of IRA is used by those who no longer need — or want — to take all of their IRA assets at the same time. Extended IRAs can have extensive tax benefits because second-generation beneficiaries are allowed to continue distributions over the life expectancy used by the first-generation beneficiary, thereby spreading the tax burden from distributions over a long period.After re-reading Pub 590-b – I tend to agree with you, but it is clearly flawed wording and needs to be clarified with more examples and/or flow chart (MY example is NOT at ALL uniquie in my opinion and should clearly be inserted into their revise text asap! The PERTINET part of Pub 590 B is the 2nd sentence I quoted in my first post : ” . Instead the deceased beneficiary’s remaining interest must be distributed within 10 years after the beneficiary’s death, (which is what I believe YOU also agree with – my kids have to empty out my inherited IRA within 10 years of my death (assuming I die tomorrow). rsvp if you disagree with my interpretation of what you think/stated – and ALSO – where does this person who wrote the article/link get off by positng ERRONEOUS Information expecially since she provides NOT SOURCES TO BACK IT UP in the first place?! SOMEBODY should contact her and demand she remove this link asap!! thank you for your time.