Inheriting a post Secure ACT Inherited IRA
Mary, age 65, passes away in December of 2021 leaving her Traditional IRA to her 60 year old sister Suzy.
Suzy, as an EDB, begins taking annual RMDs from the inherited IRA over her life expectancy.
At age 67, Suzy passes away leaving this inherited IRA to her son Bob age 47.
What is the last date in which Bob must empty this particular inherited IRA account?
What if Suzy continued to live and take annual RMD until her age 77, passed away, and left the account to Bob, age 57 – – – what is the last date in which Bob must empty this particular inherited IRA account?
Permalink Submitted by Alan - IRA critic on Tue, 2021-12-21 22:25
Bob would be subject to the 10 year rule. If he inherited in 2023 the inherited IRA would have to be drained by 12/31/2033.
Second scenario – also the 10 year rule. Bob would have to drain the inherited IRA by 12/31/2043.
Permalink Submitted by Richard Plant on Tue, 2021-12-28 22:03
Thank you – -so lets continue one level deeper and say Bob inherits the inherited IRA in 2023 (as stated in the 1st scenario above) and then Bob dies 2 years later in 2025 and leaves this IRA to his disabled son – – -does the disabled son get a new10 years or do they get to use the the old rules?
Permalink Submitted by Alan - IRA critic on Tue, 2021-12-28 23:31
The disabled son will be inheriting an already twice inherited non spouse IRA. First beneficiary was an EDB, Bob as successor beneficiary falls under the 10 year rule, but the disabled son is only allowed to complete Bob’s 10 year rule period. This is actually how a non spouse successor beneficiary has always been treated, they are only allowed to complete the distribution schedule of the prior beneficiary. To simplify, once a beneficiary falls under either the 5 year rule or the 10 year rule, there is never a new 5 or 10 year rule or a new life expectancy. The 5 or 10 year rule in affect can be completed which of course does not extend the life of the IRA at all.
The above is not impacted by the disability status of the son, since the son as a successor beneficiary is not a designated beneficiary so cannot be treated as an EDB (eligible designated beneficiary).
The following link to a thorough article about post Secure successor beneficiaries will be helpful. The portion that deals with this is about 1/2 way through.
Successor Beneficiary RMDs After Inherited IRA Beneficiary Passes (kitces.com)
Permalink Submitted by Bruce Steiner on Tue, 2021-12-28 23:48
The solution is for Mary to leave the IRA in trust for her disabled grandnephew. In that way, the IRA will qualify for the stretch over the grandnephew’s lifetime (assuming the trust otherwise qualifies).
Bruce Steiner