Minor Child EDB, the 10-Year Rule, and owner’s age at death.
The December newsletter gave an example where Lisa, age 10, inherited an IRA from her mother. In the example, she stretched until she turned 21, then the 10-Year rule applied. There was no mention of her mother’s age at death, but if Lisa was 10 it would seem reasonable to assume her mother had not yet achieved her RBD age.
In the example, Lisa had to take RMD’s during the 10 year period. Did her mother’s age at death not have any bearing in this case? I thought if the owner died before their RBD, then an Eligible Designated Beneficiary did NOT have to take RMD’s during the 10-year period. Is the rule different when the EDB starts out as a minor?
Thank You!
Permalink Submitted by Alan - IRA critic on Wed, 2022-11-30 17:15
Yes. EDBs must take annual LE RMDs, however those RMDs stop when the minor child reaches 21. The 10 year rule then kicks in and the inherited IRA must be drained when the child reaches 31.
Permalink Submitted by Jason McBride on Wed, 2022-11-30 18:05
So, was the example in the newsletter incorrect? Not trying to “gotcha” you guys or anything. Just want to make certain I understand correctly. So Lisa would stretch to age 21, then no RMDs required for the next 10 years. She just has to have the account empty by the end of year 10?
Permalink Submitted by Alan - IRA critic on Wed, 2022-11-30 20:00
Yes, I cannot find this newsletter posted on this site. Passing prior to RBD would not result in annual beneficiary RMDs under the 10 year rule, but a minor child starts out as an EDB for which annual RMDs are required as long as they remain an EDB. But unlike other EDB beneficiaries, the minor child ceases to be an EDB at 21, and that is when the 10 year rule begins, and the annual RMDs can stop. That said, if the child does not take some distributions in years 1-9 the lump sum distribution in year 10 when the child should then be in a higher bracket suggests that the child would benefit by taking some distributions each year even after the annual RMDs stop at 21.
Permalink Submitted by Jason McBride on Wed, 2022-11-30 20:44
Thank You!