IRA Beneficiaries RMD – Ghost Life
I’ve looked at the new Secure Act Proposed Regs and but don’t have the concentration and will power to read 275 pages. I have a question based on the following situation.
If a client’s IRA names, 3 children and 2 charities as beneficiaries and the client dies at say age 75. According to the rules they have until September 30 of the following year to satisfy the Charity distributions and the kids could maintain the 10 year rule along with Annual RMD as being Qualified DB but not Eligible DB.
What if in this situation, they didn’t satisfy the Charitable distribution before September 30, would the Charity’s interest make them all fall into the Non Qualified DB status and allow them to distributed the IRA over the Ghost Life of a 75 year old which is 14.8 years? Or do the regs address this somewhere and this is a closed loophole?
Permalink Submitted by Brian Devers on Wed, 2022-03-09 20:42
I just read an article from Kitces and what I get from that article is that the ghost life only lasts for 5 years and there is still the lump-sum distribution by the end of the 5th year.
Permalink Submitted by Alan - IRA critic on Wed, 2022-03-09 22:53
The ghost life (that of the decedent) is not limited to 5 or 10 years, it is the remaining non recalculated LE of the decedent, but it only applies if the the account owner passed on or after the RBD. The first divisor would have to be 15.4 or less. However, if the account owner passed prior to RBD, the 5 year rule applies. The 5 year rule is not considered to be a “ghost” life expectancy.
With respect to designated beneficiaries and charities both remaining as plan beneficiaries on the beneficiary determination date (9/30), you are correct in your determination that if nothing else is done by the end of that year there will be no designated beneficiaries and all will be treated as non designated beneficiaries such as an estate.
That said, there IS a final option, that of the separate account rules per Sec 1.401(a)(9)-8. Under these rules if an individual beneficiary establishes a separate inherited account no later than 12/31 of the year after the year of death (3 months after the beneficiary determination date), then that individual is treated as a designated beneficiary, or even an eligible designated beneficiary should they qualify. Therefore that separate account beneficiary could use the 10 year rule, or the EDB rules if they qualify. The new Regs do not state that ALL such individuals must create these separate accounts, rather those that do are separated from those that miss the deadline.