Twice inherited BDA from a Spousal BDA
Hello,
I was approached with a question 2022 RMD question for a client who inherited a BDA from her mother’s Spousal BDA. Her mother passed in 2020 and her father passed in 2010. Due to the Secure Act 2.0, I was looking to see what the client can expect from next year’s RMD.
When reviewing the client’s account and her mother’s account, my boss approached me with the tip in the IRS Pub 590B found below. We saw that the mother’s 2017 and 2018 RMD payments did not pay enough. My boss is considering that the mother would be the original depositor and the client would be the 1st inheritor.
“For any year after the owner’s death, where a surviving spouse is the sole designated beneficiary of the account and he or she fails to take a required minimum distribution (if one is required) by December 31 under the rules discussed below for beneficiaries, he or she will be deemed the owner of the IRA. For details, see Inherited from spouse under What if You Inherit an IRA, earlier in this chapter”
https://www.irs.gov/publications/p590b#en_US_2021_publink100090519
I wanted to reach out to see what you think about the following rule. Prior to the following information given to me, I was just considering the client just following the 10-year plan starting in 2020 since that is the year her mother passed away, and no RMD until 2023.
Thank you.
Permalink Submitted by Alan - IRA critic on Thu, 2022-12-15 17:41
Yes, failure of a sole surviving spouse beneficiary to fully complete their beneficiary RMD results in the inherited IRA defaulting to ownership status regardless that the IRA is still titled in beneficiary form. Client can therefore be treated as a designated beneficiary rather than a successor beneficiary. Unless client is disabled or chronically ill, she will still fall under the 10 year rule, and if mother passed on or after her RBD, client will have to take annual RMDs in years 1-9. That said, the IRS has waived these beneficiary RMDs for 2021 and 2022 under her 10 year rule. You did not say when mother passed in relation to her RBD.