5-year rule for beneficiary distributions
I understand the distributions under this rule have to be “roughly equal.” How do I know what “roughly equal” means? What if the account changes considerably in value from one distribution to the next? Should the distribution always be roughly the value of the account divided by the number of years remaining?
Permalink Submitted by Alan Spross on Sat, 2008-10-04 20:38
There is no such rule for equal beneficiary distributions, even if the beneficiary is under the 5 year rule that requires the account to be drained by 12/31 of the 5th year following the year of the owner’s death.
The benefit of taking out approximately equal amounts each year is that your tax bracket is less likely to be negatively affected than if you waited until the end of the period and took a lump sum distribution then.
You may have also heard about “substantially equal periodic payments”, which is a plan that allow the IRA owner to take early distributions without paying a penalty. That is a totally different situation than beneficiary distributions under the 5 year rule.