Inheriting an Inherited IRA of a Non-Eligible beneficiary (as a spouse), POST-SECURE
Hypo – A client passed away in Oct-2020 and the beneficiary was the owners daughter who was a non-eligible beneficiary and subject to the 10 year rule. An inherited IRA for the daughter was set-up in 2021. The daughter passed away in 2022. The daughters sole, primary beneficiary is her spouse.
Q – The daughters spouse has no option to utilize spousal rules (or anything “unique”), correct? If this is true, I assume that the daughters spouse must accept his IRA inheritance within his own, newly established inherited IRA and because the daughter (his wife) was not an eligible-beneficiary of the original IRA owner, he does not get a “reset” on the 10-year rule and he will have until Oct-2030 to fully disburse the account. Is this correct?
The uncertainty I am having is in regards to the 10-year rule and if it “resets” in the case of a successor beneficiary of a non-eligible beneficiary, POST-SECURE .
I am very hopeful that this community can clarify.
Permalink Submitted by Alan - IRA critic on Wed, 2022-08-24 19:59
Correct, the successor beneficiary cannot do a spousal rollover and also does not receive a new 10 year rule. The successor beneficiary must drain the twice inherited IRA by 12/31/2030. The question here is whether the IRA owner passed prior to or post RBD. If post RBD, then the designated beneficiary may have had to take a LE RMD for 2021 and 2022 per the proposed Secure Act Regs which are still not final. And the successor beneficiary may have to continue that RMD schedule while still draining the account by 12/31/2030. There is no certainty about these LE RMDs until the proposed Regs become final unless the owner passed prior to RBD..
Permalink Submitted by John Frigeri on Thu, 2022-08-25 20:26
The “original” IRA owner (father) died post-RBD and the beneficary (daughter) did not take a distribution in 2021 or 2022 as my understanding has been that the 10 year rule worked like the 5 year rule and a LE RMD wouldnt be required each year but instead, the entire account would have to be drained by the 10th anniversary of the “original” IRA owners death. I guess we will have to wait and see what the final regulations are.
Permalink Submitted by Alan - IRA critic on Thu, 2022-08-25 21:43
That is what most of the retirement account community expected, therefore the IRS proposed Regs presented a number of unpleasant surprises. However, because 2022 is the last year the successor beneficiary can file jointly likely with lower marginal rates than post 2022, it might be wise to take the 2022 RMD as a partial step to eliminate the effects of a large lump sum distribution in 8 years. The IRS rarely if ever pursues a beneficiary or a deceased beneficiary’s estate for a missed RMD, so I would not be concerned with the 2021 RMD. But the successor beneficiary could be held responsible for the 2022 beneficiary RMD or at least be required to make it up after the Regs become final. If the successor is still working and not maxing out their workplace plan, they could use the RMD money to fund an increased pre tax contribution to their workplace plan, offsetting some portion of the tax bill for the inherited IRA distribution.
Permalink Submitted by John Frigeri on Fri, 2022-08-26 17:40
Continuing with the exact scenerio with a modification.If the daughter was an EDB due to chronic illness, but did NOT take a LE RMD in 2021 would the succesor beneficary (her husband) be entitled to a “reset” of the 10-year rule?
Permalink Submitted by Alan - IRA critic on Fri, 2022-08-26 22:25
Yes, if daughter was an EDB as of 10/2020, her husband would be subject to a 10 year rule ending 12/31/2032. But the uncertainty over annual RMDs during that period remains. If the proposed Regs stick, husband would have to continue the RMD schedule of daughter during the additional 10 years including the 2022 beneficiary RMD not distributed by daughter.