The beneficiary can take out the RMD and any amount in addition to the RMD they wish. The additional amounts can vary from year to year. The only penalty possible is for failure to distribute the full RMD amount. The additional amounts taken out will be taxable and will also reduce future RMDs because the year end account balances will be reduced by the extra distributions.

Once the separate accounts are created, each beneficiary’s RMD is determined by their own year end balance only. However, for the year that the separate accounts are set up, the only prior year end balance is the combined account. In this situation, the IRS will expect the correct total RMD to be distributed, but will not care if it is distributed before the accounts are set up or if one particular beneficiary chooses to take enough out to satisfy the RMDs for the others.

From an accounting standpoint in order to achieve equity in determining each beneficiary’s share of the account when the separate accounts are created, it is easier to create the accounts prior to any distributions during that year. Each beneficiary then gets the share of the account per the beneficiary clause on the IRA. But if the beneficiaries withdraw unequal amounts prior to the split, each distribution will have to be allocated as a % of that beneficiary’s share based on the account balance on the date of distribution. If the separate accounts are created first, the RMDs taken later still allow that one beneficiary can take enough out to satisfy the RMDs of the others, allowing the ones that want to stretch the account to avoid an RMD for that year. This ONLY applies in the calendar year the separate accounts are created.

The separate accounts must be created no later than the end of the year following the year of death or the life expectancy of the OLDEST beneficiary will have to apply to all of them until their accounts are exhausted.

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