Post 2020 Older Beneficiary
What are the options for the non-spouse beneficiary of a post 2020 IRA who is older than the original account? The account owner had reached his RBD age.
What are the options for the non-spouse beneficiary of a post 2020 IRA who is older than the original account? The account owner had reached his RBD age.
Permalink Submitted by David Mertz on Tue, 2024-01-30 19:51
A non-spouse beneficiary who is older than the decedent and the decedent was past their RBD must take annual RMDs based on the [correction] original owner’s life expectancy from the Single Life Expectancy table in the year of the decedent’s death, reduced by 1 each subsequent year. The 10-year rule does not apply. [See Alan-iracritic’s reply regarding the requiement to fully distribute the IRA by the year the beneificary’s life expectancy factor would have been 1 or less.]
Permalink Submitted by George McCabe on Tue, 2024-01-30 19:54
They would not have the option to choose between the greater of the factor between their (the beneficiary’s) single life expectancy and the decedent’s single life expectancy?
Permalink Submitted by Alan - IRA critic on Tue, 2024-01-30 19:54
The beneficiary is an EDB and can stretch RMDs over the longer LE of the decedent. That said, the Secure Act in a bizarre and unnecessary rule states in this situation that the inherited IRA must be fully distributed in the final year of the beneficiary’s LE even though the annual RMDs are calculated on the longer life expectancy of the younger decedent. Therefore, the beneficiary must track both the decedent’s LE and their own to determine when the account must be drained. The older the beneficiary is in relation to the decedent, the more likely that the IRA will have a short life span. The beneficiary has no options to avoid this rule, but if they want to avoid some of this complexity and have a lower lump sum distribution at the end, they might simply use their own LE from the start instead of decedent’s.
Permalink Submitted by David Mertz on Tue, 2024-01-30 20:00
I’ve adjusted my previous reply. Because the obscure rule, it still might be better for the beneficiary to base distributions on their shorter life expectancy to even out the distributions.
Permalink Submitted by David Mertz on Tue, 2024-01-30 20:04
I wonder how the obscure rule would affect a successor beneficiary. If the original beneficiary died before the final year, would the successor beneficiary be required to fully distribute the IRA when the original beneficiary’s life-expectancy value reaches 1 or less?
Permalink Submitted by Alan - IRA critic on Tue, 2024-01-30 23:02
Yes, I think that is the correct result. While the successor beneficiary is subject to the 10 year rule, because original owner passed post RBD, the RMD schedule of the designated beneficiary must continue and the inherited IRA must be drained at the earliest of when the beneficiary RMD divisor reaches 1 or less or the 10 year rule expires.