Inherited IRAs and Eligible Designated Beneficiaries: Today’s Slott Report Mailbag

Thursday, December 28, 2023

By Andy Ives, CFP®, AIF®
IRA Analyst
Follow Us on X: @theslottreport

 

QUESTION:

If the grandkids who inherited an IRA are under the age of majority, when does the 10-year rule for emptying the account begin? At the death of the IRA owner, or when they reach the age of majority?

Thanks,

Larry

ANSWER:

Larry,

When a minor grandchild inherits an IRA, the 10-year rule (i.e., “year one”) starts in the year after the year of death of the IRA owner. Grandchildren cannot delay the start of the 10-year rule. The ability to take annual lifetime stretch required minimum distributions (RMDs) immediately while also delaying the start of the 10-year rule until age 21 is only available to minor children of an IRA owner.

QUESTION:

I have a unique situation as follows: A son who is age 64 is tragically killed in a traffic accident. The beneficiaries of his IRA are his parents who are ages 92 and 90. It is my understanding that the parents will qualify as EDBs (eligible designated beneficiaries). The decedent has 3 brothers whose ages are within 10 years. If the surviving brothers (siblings) are named as the beneficiaries of the new inherited IRAs 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:

Dan,

You are correct that Mom and Dad both qualify as EDBs under the “not more than 10-years younger than the IRA owner” EDB category. Mom and Dad can each set up their own inherited IRAs, and they will have a couple of options regarding the payout structure. Since the deceased son had not yet started taking RMDs (he died before reaching his required beginning date), EDB Mom and Dad can choose either lifetime stretch RMD payments from the inherited IRA, or the 10-year rule WITHOUT annual RMDs. (Based on their advanced ages, a full stretch would only net about 5 years, so this is an important decision.) Regardless of what Mom and Dad choose, if they name the surviving siblings as beneficiaries on the inherited IRAs, those siblings will not qualify as EDBs. They will be successor beneficiaries. If Mom and Dad choose to take the lifetime stretch on their inherited IRAs, a successor beneficiary would receive a full 10-year payout rule. If Mom and Dad elect the 10-year rule, a successor beneficiary can only continue whatever time remains on the existing 10-year period.

 

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