IRA Owner Died this Year with Charity as Beneficiary
IRA owner, 75 years old, died in February without having taken his 2022 RMD. One of the beneficiaries is a non-profit and has taken its share of IRA owner’s 2022 RMD. (All beneficiaries have set up their own inherited IRA accounts.) My understanding is the non-profit is required to take the remaining balance of the account over the next 5 years. My question is: does it matter how much it takes each year, as long as it has distributed the entire account by 12/31/27?
Permalink Submitted by Alan - IRA critic on Sat, 2022-12-17 21:21
The 5 year rule would not apply here because the IRA owner passed after their RBD. Normally, a charitable beneficiary would receive a total distribution of their share and no taxes would be due. A total distribution to the charity would also satisfy the year of death RMD for 2022. The other beneficiaries will likely have to take annual LE RMDs starting in 2023 if the proposed Secure Act Regs become final as proposed. Would any of the individual beneficiaries qualify as an EDB or all they all 10 year rule beneficiaries?
Permalink Submitted by Sherry Cadenhead on Mon, 2022-12-19 19:31
The 4 individual beneficiaries are more than 10 years younger than the deceased. They will each be required to take an RMD under the old rules each year and liquidate the accounts by the end of the 10th year correct? The last I saw on this, the IRS will not allow these folks to wait until year 10 before taking any distributions.The charitable beneficiary has established inherited IRAs for its benefit. I realize it wasn’t necessary to set those up vs. opening its own account. Does the fact that it did mean it is now subject to RMD rules?
Permalink Submitted by Alan - IRA critic on Mon, 2022-12-19 20:17
Yes, they must take annual RMDs within the 10 year rule, based on their individual ages attained in 2023. The charity should simply request a full distribution from their inherited IRA account. That distribution will be tax free, so there is no reason for the charity not to cash out their portion. That said, if the charity does nothing, it should not have any effect on the individuals that established separate inherited IRA accounts.