RMD Calculation options for Non Spousal Benificiary
I have reviewed publication 590 extensively and worked with IRAs for 20 years now.
I have a quick question and believe to know the answer, but I thought I would check all my resources, not just internal and my CPA.
As you know I cannot give tax advise but I wante to advise my client on options for his benefit and consideration.
I personally inherited a client that has been taking an RMD for about 4 years now. Client is under impression 5 year rule is
the correct or best option for him. My understanding is he was not consulted on the non spousal single life RMD rule.
This is what I know
Mother passed in 2006
Mother was post 70 1/2
Traditional IRA was split between 3 children within required time and structured as conduit IRA (beni) properly.
My client is one of those children
I can obtain all necessary data if he is able to now do a single liefe expectancy calc going forward
I know that taking too much in prior years will not affect his options going forward
When the topic was brought up, I came to understand client was not taking the non spousal single life expectancy method.
Could you spell out for me the RMD options that were available to him on the onset?
Permalink Submitted by Jose Morales on Fri, 2011-10-14 16:53
The only option available to a non-spouse beneficiary when the IRA owner dies on or after the Required Beginning Date (4/1 of the year after attaining 70 1/2) is the longer of the beneficiary’s or IRA owner’s Single Life Expectancy – Reduction Method. If the beneficiary has not been taking their beneficiary RMD then they would owe a 50% tax penalty for each year in which that RMD was not completed.
The beneficiary may want to see if they can be forgiven from having to pay this penalty by taking a distribution of all the RMDs missed right now (no RMD was required in 2009) and pleading ignorance of their distribution options, while showing the IRS that they now understand what they must do to satisfy their RMD in a timely manner each year going forward.
Permalink Submitted by Curtis Loveday on Fri, 2011-10-14 18:13
I apologize if I was no clear but the ira beneficiary [b]has been taking an RMD each year[/b], just not using the single life beneficary option from what I have gathered. My Client/Non Spousal Beni is 63 this year.
All three client/benis have been taking an RMD annually under a method in which their divisor used was
2007 no record of divisor and dist. (in the process of obtaining info from client/beni)
2008 was 6.1,
2009 no dist ,
2010 4.1,
2011 is 3.1.
The above multiples were provided in notes via the previous advisor.
I have asked for forensic information in an effort to determine what method they used to calculate these multiples and figures.
I can not quite understand how they arrived at the above multiples given the data provided thus far.
I am in the process of getting the numbers required to calculate for the client what the single life beneficiary RMDs would have been.
I plan to suggest they use single life going forward, unless I am missing something.
Permalink Submitted by Alan Spross on Fri, 2011-10-14 19:54
Since the beneficiaries apparently took out too much, there is nothing that can be done about that now except to change over to their own life expectancies. An excess in any year cannot be credited against future RMDs, but it will reduce the account balance somewhat and therefore reduce future RMDs.
Looking at the divisors you posted, being reduced by 1.0 each year, it certainly appears that the decedent’s life expectancy was used instead of the beneficiary’s. It looks like 2007 would have been 7.1. Projecting further, 7.1 would apply if the decedent would have been 84 in 2006. That divisor is 8.1 and subtracting 1.0 would produce 7.1 for 2007, 6.1 for 2008, skip 2009, 4.1 for 2010 etc. But this would produce an RMD far greater than required if the children used their own life expectancies. If this checks out, there is nothing that can be done now other than to change over to the correct RMDs. (Any amount in excess of the correct RMD that was taken out in the last 60 days could be rolled back to the IRA).