Separate Accounts Rules

Submitted by Kim Shields on Tue, 2023-11-07 21:00

We have a Roth IRA where the owner died in 2021 and we were not notified until 2023. The deadline for creating separate accounts for each of the beneficiaries has long passed. Is the only option then to maintain the original IRA for the benefit of both beneficiaries and just keep careful track of who has taken what distributions? What is the source of the rule? It seems like the separate accounts explanations are always a part of figuring RMD amounts which is a moot point for Roth IRAs under the new rules.



Submitted by David Mertz on Tue, 2023-11-07 21:28

  • Separate accounts can be established at any time, but if done after the end of the year following the year of death, the RMD for each respective share will be determined using the same calculation that would have been done had the accounts not been separated.  With an inherited Roth IRA that’s not really a problem if all beneficiaries are non-EDBs to which the 10-year rule would apply with no annual RMDs anyway.
  • See CFR 1.401(a)(9)-8 Q&A-2(a)(2)
  • https://www.ecfr.gov/current/title-26/chapter-I/subchapter-A/part-1/subject-group-ECFR6f8c3724b50e44d/section-1.401(a)(9)-8
  • The proposed regulations rewrite that section, but the result is the same.  It says that if the separate accounting requirements are not timely satisfied then the separate accounts are aggregated for the purpose of calculating the RMD and then each beneficiary is required to satisfy their proportionate share of the RMD based on the separate account balances.

Submitted by Alan - IRA critic on Tue, 2023-11-07 23:28

Also, note that if any of these beneficiaries would have been an EDB if a sole beneficiary, because the separate account deadline passed and if there were other non EDB beneficiaries, then all beneficiaries are non EDBs, meaning that the EDB lost EDB status. 

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