non-spouse bene
Clients mother passed away last month and she named her three children as beneficiaries. If each one sets up an IRA BDA account, do they take the RMD based on their life expectancy or is it based on the life expectancy of the oldest beneficiary/sibling? Also, if the mother hasn’t taken out her RMD yet (she was 73) she will have to take that out before the end of the year and before doing the split to her children. Right?
Permalink Submitted by Alan Spross on Tue, 2008-12-09 20:33
The decedent’s RMD should be taken prior to year end if possible, and can be done either before or after the separate accounts are created. On advantage of creating the separate accounts first is the ability to handle the RMD differently between the beneficiaries, ie if one beneficiary needs the money and another does not, then the RMD can be satisfied by the one that wants to take the distribution. The IRS does not care which one takes the RMD as long as it is distributed.
For 2009, the separate accounts will allow the RMD to be based on the single life expectancy of each beneficiary, rather than that of the oldest. The separate accounts will also make it easier for each beneficiary to manage the investments they want, eliminate accounting between beneficiary shares, and make it easier to move the account to the IRA custodian of their choice by direct transfer.
Remember to make sure they all know that they cannot use an indirect rollover to move the funds, it must be done directly. They also need to name successor beneficiaries on the separate accounts.