Inherited IRA with a twist

Submitted by Patricia Passon on Wed, 2023-12-13 18:56

Client was beneficiary of lump sum death benefit from her mother’s university retirement plan. Documentation specified that it would be taxed or could be rolled over to an inherited IRA.

Mother died in 2017 at age 73. Death benefit was distributed and rolled over to inherited IRA in 2023. No RMD was paid for the mother.

I would appreciate confirmation or correction of my thinking:
1. Mother died in 2017 so the inherited account is not subject to SECURE 10 year distribution.
2. Mother’s RMD should be taken prior to year end based on what her age would have been in 2022.
3. Beneficiary should begin taking RMD in 2023.

Thank you.



Submitted by Alan - IRA critic on Wed, 2023-12-13 19:22

  1. Correct.
  2. Plan should have distributed mother’s year of death RMD for 2017 in 2017 to the beneficiary.
  3. Mother passed after RBD, therefore beneficiary RMDs should have been distributed from 2018-2023 (except 2020) from the plan to client each year. If not, they are delinquent. These were beneficiary RMDs, not mother’s RMDs. Such beneficiary RMDs should continue from the inherited IRA starting in 2024. What is the explanation from the plan for failing to distribute these RMDs? Did client fail to provide beneficiary info to the plan?


Submitted by Patricia Passon on Wed, 2023-12-13 19:40

It is actually described as a death benefit.From the university:”When an active, inactive, disabled, or retired member dies, UCRP pays a basic death benefit of $7,500 to the member’s beneficiary, in addition to any monthly UCRP income that may be payable to eligible survivors or to the contingent annuitant.” There was no other payment to the beneficiary. Death benefit was not paid until the beneficiary was notified and requested it. Based on the nature of the benefit and that it was not a retirement account per se I did not believe that RMDs applied until it was paid out and rolled over to the IRA.



Submitted by Alan - IRA critic on Wed, 2023-12-13 20:35

OK, having access to the specific plan booklet helps.  This is a DB plan with a supplemental death benefit. I assume that other than the 7500 death benefit, this beneficiary is receiving periodic checks which satisfy the RMD requirements for DB plans. It’s not clear what effect the delayed payout of the 7500 has on RMDs, but that’s the responsibility of the plan’s administrator, including the 2023 year. For the inherited IRA, to be conservative, I would determine what the 2018 beneficiary divisor would have been using the current single life table, then reduce that divisor 1.0 for each year since, making the 2024 divisor 6.0 less than the 2018 divisor. 



Submitted by Patricia Passon on Wed, 2023-12-13 20:59

Thank you again.Death benefit was the only benefit. Hadn’t though about going back to 2018 for beginning divisor so thank you for that. It definitely makes sense. You suggest using the ‘current’ single life table. Would it be better to use the 2018 table?Would you also err on the conservative side and take a 2023 distribution? I believe the benefit check was cut in 2022 and deposited in the rollover IRA in 2023. I understand that divisor would be 5 less than 2018 divisor.



Submitted by Alan - IRA critic on Wed, 2023-12-13 21:27

The process of resetting beneficiary RMD divisors to the new 2022 tables requires determining what the initial divisor would have been for the first RMD year, but only using those divisors for 2022 and subsequent RMDs. If the direct rollover check was issued in 2022, then we can assume that the plan took care of any RMD requirements through 2022, since any such RMDs (if actually required) would not have been included in the check. Therefore, the 2018 divisor from the new table would be reduced by 5 for the 2023 beneficiary RMD and by 6 for the 2024 RMD.



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