IRA RMDs
A wife, taking RMDs from her own large IRA, inherits a large IRA from her husband who was also taking RMDs. If she would like to minimize total RMDs, would she be better off taking RMDs from her own IRA according to the Uniform Distribution table, and from her husband’s inherited IRA according to the Single Life Expectancy table without rolling over into her own IRA? If she rolls over her inherited IRA into her own IRA, which table or tables would she use?
Permalink Submitted by Alan Spross on Mon, 2010-07-05 23:28
There is nothing the surviving spouse can do to change the RMD for the year of death, ie. it will be determined as if the decedent lived all year regardless of whether the IRA was assumed or maintained in beneficiary form.
But for subsequent years, things can get real confusing. Assuming ownership will produce a lower RMD in most cases under the mandatory Uniform Table for owners. There is an exception however if the surviving spouse is considerably older than the decedent. For example, if the deceased spouse was 75, a surviving spouse of age 89 or older would have a lower RMD by continuing as a beneficiary under the Single Life Table using the remaining life expectancy of the decedent. But that lower RMD would not last because using the decedent’s divisor reduced by 1.0 each year would eventually produce a HIGHER RMD than the Uniform Table if ownership is assumed because the Uniform Table automatically recalculates ages and the divisor reduces much less than 1.0 each year. In this example, the survivor would have a lower RMD for a couple years as beneficiary, but then the Uniform Table would produce a lower RMD, so ownership would then be assumed if the lowest possible RMD was the goal.
However, there is a downside if the older surviving spouse does not assume ownership before passing. If the surviving spouse names a child as successor beneficiary, the child will not get a new stretch when the surviving parent passes. But if the surviving spouse had assumed ownership, the child is treated as a designated beneficiary and would be able to use their own life expectancy when they inherit the IRA. In this case you have a trade off between the absolute lowest RMD vrs the stretching potential for the child.
Therefore, if you factor in a younger family member as the next beneficiary along with the non recalculation math cited above, in all but the most extreme age differences when a spouse passes after the RBD, assumption of ownership is the way to go. It also simplifies things by having only one RMD divisor for a combined owned IRA rather than two accounts with different divisors.
Permalink Submitted by Clyde Wolf on Tue, 2010-07-06 18:07
Interesting discussion.
Had the younger family member been named as a contingent beneficiary of the decedents IRA, could the surviving spouse declined their share of the IRA, and the younger family member contingent beneficiary could then be named as the beneficiary of the IRA?
Permalink Submitted by Alan Spross on Tue, 2010-07-06 18:31
Yes, a surviving spouse can execute a full or partial disclaimer within 9 months from the date of death per Sec 2518. The contingent beneficiaries would then be considered designated beneficiaries for the portion disclaimed, and could create separate accounts no later than the end of the year following the year of death under which they could use their own life expectancies for their RMDs. For any portion not disclaimed by the surviving spouse, the options remain the same regarding assumption of the balance vrs continuing as a beneficiary.
The IRS has ruled that an RMD taken by the original designated beneficiary does not impair their right to disclaim any remaining balance in the IRA, but this rule does not permit any other distributions to be taken if there is to be a disclaimer filed.