Withdrawal Schedule when there is an IRA inheritance by Will
I need help for a client getting confusing info from Vanguard- The original Trad IRA account holder died in 2000 at age 90, with no named beneficiaries. 2 nieces inherit based on the will. My client’s spouse, who is the younger of the nieces, receives funds in an Inherited (Beneficiary) IRA account in 2021. Tragically, my client’s spouse passes away in 2022 at the age of 55 and Vanguard allows him to open an Inherited (Beneficiary) IRA account because he is named as his spouses beneficiary.
After many conflicting opinions, Vanguard says he has the 5 year distribution clock running and he must take RMD’s during the 5 years.
Do you agree about the 5 year distribution and the need for RMD’s.? When would the 5 year clock start?
As an fyi, I have him engaging with his Tax Profesionnal regarding what distribution he should take this year to take advantage filing as married/joint for 2022. (Got that from an IRA Success Workshop in 2019.)
Thanks
Neal Gordon
973-291-2800
Permalink Submitted by Alan - IRA critic on Tue, 2022-11-08 18:27
I’ll assume that year 2000 is a typo and the original owner passed in 2020. The distribution period for all beneficiaries inheriting through the will is based on the remaining single life expectancy of the deceased owner, and that continues for the client. The 5 year rule does not apply here because these are successor beneficiaries, and the RMD schedule that applied for client’s spouse must continue for the client. Resetting the RMD divisors for the new 2022 RMD tables results in a 2021 divisor of 4.7, 2022 divisor of 3.7, etc. The inherited IRA must be drained in 2025 when the divisor will be .7. It is just a mathematical coincidence that the final year will be 5 years after owner’s death, but this is not the 5 year rule. An annual LE RMD is required in each year through 2025. Further, if the 2022 beneficiary RMD was not completed by client’s spouse before passing, client must complete that RMD, and should do it this year to take advantage of the last year of filing jointly. If the inherited IRA balance is large, perhaps client should take out more this year, as there are only 3 years left after this year.