Eligible designated beneficiary
One of the criteria for being an eligible designated beneficiary (EDB) is “not more than 10 years younger” than the owner. If the beneficiary is OLDER (one year older), is the beneficiary considered an eligible designated beneficiary or just a designated beneficiary?
Permalink Submitted by Alan - IRA critic on Mon, 2023-11-06 15:59
An EDB. That includes any beneficiary who 10 years younger to the day or older. And if the beneficiary is actually older and the IRA owner passed after RBD, the EDB could use the remaining LE of the decedent for annual RMDs, but there is another new rule that in this situation, the EDB would still have to drain the inherited IRA in the year that their own divisor would reach 1.0 or less. A beneficiary falling under this latter set of circumstances using the younger decedent’s LE would therefore have to track the divisors for two lives to know when the inherited IRA must be drained. This particular provision is clearly overly complex and ill conceived.
Permalink Submitted by rosalyn malin on Mon, 2023-11-06 18:11
Does an Elegible Designated Beneficiary who is older than the owner of the IRA have the OPTION of either 1) NOT taking RMDs and just emptying the inherited IRA by the end of the 10th year or 2) taking RMDs until the LE is 1 or less(assuming the IRA owner passed in 2021 after RBD)
Permalink Submitted by Alan - IRA critic on Mon, 2023-11-06 20:15
Option 1 is only available if the owner passes prior to RBD. In this case, passing post RBD, option 2 must be used.
Permalink Submitted by rosalyn malin on Tue, 2023-11-07 12:43
Does the same hold true for an inherited ROTH IRA? Assuming passing was in 2021, owner had had the ROTH IRA for many years, was 80 years old and the beneficiary is a year older than the owner. May the beneficiary follow the 10 year rule or does the beneficiary have to take RMDs?
Permalink Submitted by David Mertz on Tue, 2023-11-07 12:53
With respect to a Roth IRA, because the owner is not required to take distributions from a Roth IRA, the owner is treated as having died before their RBD. Because the owner died before their RBD, the EDB has the option to use the 10-year rule for the inherited Roth IRA. With the beneficiary being older than 80, opting into 10-year rule would be a sensible choice since with annual life-expectancy distributions the Roth IRA would have to be emptied in no more than 11 years anyway, probably less.
Permalink Submitted by rosalyn malin on Tue, 2023-11-07 17:32
Thank you