The 10-Year Rule and Eligible Designated Beneficiaries: Today’s Slott Report Mailbag
By Sarah Brenner, JD
Director of Retirement Education
Follow Us on Twitter: @theslottreport
Question:
I believe we are all waiting for the IRS to issue rules related to distribution requirements (or not) for beneficiaries who are subject to the 10-year rule under the SECURE Act. Where is the clarification for 2023? In my situation, my children are beneficiaries who inherited an IRA from Grandma, who passed away in 2022. She had started her required minimum distributions (RMDs). So, I know the accounts need to be emptied within 10 years, but there is no clarification on required RMDs in years 1-9 of the 10-year payout period.
When will the IRS update us with 2023 rules and/or another waiver?
Answer:
Your situation is unfortunately very common. There are many IRA beneficiaries who are subject to the 10-year rule and have the same confusion as to what to do for this year in the wake of the IRS issuing proposed regulations in 2022 requiring RMDs in years 1-9 of the 10-year rule.
As of right now, we have not gotten any further guidance from the IRS on this issue. You may be able to wait a little longer since there is still time left in the year but at some point, you will need to decide whether the RMDs for 2023 should be distributed. Currently we have proposed regulations from the IRS requiring RMDs to be taken during the 10-year period. In the absence of final regulations, which could be a long time coming, the safest approach is to follow the proposed regulations and take the annual RMDs.
Question:
I have a unique situation as follows:
A son, age 64, is tragically killed in a traffic accident. The beneficiaries of his IRA are his parents who are ages 92 and 90 respectively. It is my understanding that the parents will qualify as eligible designated beneficiaries (EDBs). The decedent has 3 brothers whose ages are within 10 years.
If the surviving brothers (siblings) are named as the beneficiaries of this IRA by the parents, do they qualify as EDBs if they would inherit this beneficiary IRA from the parents in the future?
Thanks so much for your assistance.
Dan
Answer:
Hi Dan,
Sorry to hear about this sad situation. This is a complicated question!
The parents would qualify as eligible designated beneficiaries (EDBs) and would be able to stretch payments over their own life expectancies (assuming the IRA is split into separate accounts). However, given their advanced ages, those payout periods would be shorter than 10 years. Because the IRA owner died prior to beginning RMDs, the 10-year rule would be another option. That would likely be a better choice since no annual RMDs would be required during that period.
If the siblings are named as successor beneficiaries on these accounts, they cannot qualify as EDBs. Instead, they will be subject to the 10-year rule. Here is where things get really tricky. If the parents chose the stretch option, those payments must normally continue during the full 10-year period. But in this case payments would likely run out in less than the full 10 years due to the advanced age of the parents. On the other hand, if the 10-year rule was selected by the parents, then the successor beneficiaries would only get whatever remains of the original 10-year period.