Inherited IRA RMD
Single person age 76 in 2021, inherited a traditional IRA in May 2016 from a single person (age 73 in 2016) that died in 2016 and that was not a relative.
The inherited IRA balance was $96,000 as of 12/31/2020.
1. What is the RMD in 2021. How is the factor to use an how is it computed. What table to use
2. What would be the factor for the year 2022 distribution
3. If there was a withdrawal in 2019 and it was lowered than the RMD. How can that be cured?
Permalink Submitted by Alan - IRA critic on Fri, 2021-09-17 17:41
The single life table applies. RMD divisors spin off the 2017 divisor of 15.5, which is then reduced by 1.0 for each year thereafter. 2021 divisor is therefore 11.5, making the 2021 RMD 8,347.83.
The 2022 divisor cannot be determined using the usual 1.0 reduction because the IRS has introduced entirely new tables for 2022, so the new divisor must be determined from the new table divisor for 2017, then reduced 1.0 each year from there. Initial divisor would have been 17.2, with the reduction bringing it to 12.2 for 2022. From there it will be reduced 1.0 each year thereafter.
A 2019 RMD shortfall must be made up and a 5329 filed to request the penalty waiver for 2019 once the shortfall has been distributed. The IRS usually waives the penalty if the 5329 form is completed correctly. This distribution is taxable in the year distributed, so a 1040X is not needed for 2019.
Permalink Submitted by alberto vega on Sat, 2021-09-18 01:15
Thanks for your answer but I want to make sure I understand.1. For tax year 2021 as you state, the distribution for the 76 year old inheritor is 96,000 divided by 11.5 which is the factor for year 2020 which is where the IRA balance is obtained from.I assumed the IRA beneficiary starts counting from year 2016 (the year the previous owner died) as the factor being then 15.5 so that it is 11.5 by 12/31/2020.2. For year 2022 the new table has to be used and then recompute what the new factor would have been at the death of the original IRA owner in 2016. And then roll the factor forward to year 2021 which then will be used to compute the 2022 distribution.
Permalink Submitted by Alan - IRA critic on Sat, 2021-09-18 01:37
Not quite right. RMDs based on the beneficiary age is the age following the year of death. That age was 72 in 2017. The 2017 divisor comes from the single life table and was 15.5. Reduction of divisor by 1.0 each year brings it to 11.5 for 2021. 11.5 is the divisor for 2021, not for 2020 and there were no RMDs required in 2020. The 12/31/2020 balance of 96,000 divided by 11.5 results in the 2021 RMD. It appears that you are confused about the fact that the year end balance for the prior year is divided by the factor for the current year (2020 year end balance divided by the 2021 RMD divisor of 11.5). The divisor in the year of death (2016) is only used when the RMD is based on the decedent’s age, but when it is based on the beneficiary age, the starting divisor is that of the year after the owner passed. Since the beneficiary was younger than the IRA owner, the RMDs are based on the age of the beneficiary starting in 2017.
Permalink Submitted by D Hodosy on Sat, 2021-10-02 11:13
was collecting SSA disability; now consider full retirement age for SSA and collecting normal SSA benefits; am I am to be considered disabled for RMD and stretch IRA payment from inherited IRA?
Permalink Submitted by Alan - IRA critic on Sat, 2021-10-02 17:27
If you were disabled on the date of death you are an eligible designated beneficiary under the Secure Act and can stretch the RMDs in the same manner as for deaths prior to the Secure Act. To document your disabled status, you should get a letter from your doctor that you meet the disability definition under Sec 72(m)(7).