RMD when ESTATE is Beneficiary
[u][b]Facts[/b]:[/u]
IRA owner, husband, dies in 2011 at age 84. RMD taken in 2011 before death occurred. His wife predeceased him in 2010 at age 81.
IRA owner’s primary beneficiary designation at time of death was “his wife”. The contingent beneficiary was “the estate” (the IRA owner did not change his beneficiary designations after his wife died). IRA owner’s beneficiaries in his will were his 4 children equally.
[u][b]Understanding:[/b][/u]
My understanding is that the 5 year rule applies if the IRA owner dies before the required beginning date (RBD). However, if the death occurs after the RBD then “the balance must be distributed over the remaining term elected by the IRA owner. Or, if the owner elected to recalculate his life expectancy, the balance must be distributed by the end of the year following the year of his death.”
[u][b]Questions:[/b][/u]
Overall I’m trying to be clear on what the IRA options are for the 4 children to stretch out the tax deferral as long as possible. If the 4 children were named as the primary or contingent beneficiary of the IRA owner, then I know they could chose to rollover their share of the deceased IRA to an inherited IRA account and take RMD’s using the “single life expectancy table for beneficiaries”.
However, since the 4 children were not named, I am unclear. Is it necessary to go back to see what the IRA owner elected (recalculation or not) when he reached the RBD to determine if, under recalculation, the beneficiaries must distribute the IRA by the end of 2012? Or, are the 4 kids able to rollover their share to an inherited IRA and take RMD’s based on “the remaining term elected by the IRA owner”?
If the answer to this last question is “yes”, what exactly is “the remaining term elected by the IRA owner”? Does this mean the 4 kids could roll to an inherited IRA and take RMD’s based on the same “uniform table” the deceased IRA owner was using? OR does it mean the kids could roll to an inherited IRA and take RMD’s based on the “single life expectancy table for beneficiaries? Or something else?
Thanks in advance for any help on this question!
Permalink Submitted by mk foss on Tue, 2011-02-22 23:50
You’ve done a good summary of the IRA rules before the proposed regulations from 1987 were withdrawn. The choices are less onerous now.
When the estate is the beneficiary of the IRA of an 84 year old, you use his life expectancy determined from the single life table. The 4 estate beneficiaries will be able to have their share of the IRA assigned to them by the executor. They cannot use their own life expectancy but they can take more than the RMD specified by using the life expectancy of an 84 year old. The factor for age 84 is 8.1 and for age 85 is 7.6. You would divide the year end balance the first year by 7.6; 6.6 the next year and so on.
Permalink Submitted by Alan Spross on Wed, 2011-02-23 00:23
Mary Kay.
Assuming age 85, for 2012 first RMD they use 6.6, right?
Permalink Submitted by David Dunn on Wed, 2011-02-23 00:31
For further clarification, the deceased IRA owner’s birthday was 9-23-1926–therefore 84 on day of death in 2011.
Permalink Submitted by Alan Spross on Wed, 2011-02-23 00:41
You don’t use the DOD age. You must use the age owner would have attained if they lived all year in the year of death, ie. in this case it would be 85 if he lived to the end of 2011. The divisor for the 2012 RMD would therefore be 6.6 (7.6 in the year of determination which is 2011 reduced by 1.0 for 2012). Divide the 12/31/2011 value by 6.6. 2012 RMD does not have to taken until 12/31/2012.
Permalink Submitted by mk foss on Wed, 2011-02-23 03:27
I agree with Alan. With a lving beneficiary you start with the person’s age the year after the death and reduce the factor by 1.0 each year. See Reg.1.401(a)(9)-5(c)(1). When there is no designated beneficiary you start with the factor for the age the IRA owner would reach in the calendar year of death and reduce the factor by 1.0 each year.See Reg.1.401(a)(9)-5(c)(3).