RMD Rules for beneficiary’s beneficiary
Am I correct in my understanding that a benefiary’s beneficiary of an inherited IRA will just continue the RMD payment schedule of the initial beneficiary?
Ex., A person dies and son inherits IRA and starts taking RMD based on his life expectancyt. Son passes away his son (grandson inherits), does the grandson takes RMDs based on his dad’s life expectancy?
Permalink Submitted by Jose Morales on Fri, 2012-10-12 16:22
That is correct. The beneficiary distributions are set by the first beneficiary and do not change if they pass before the account is exhausted.
Permalink Submitted by Alan Spross on Fri, 2012-10-12 17:50
Good points.
This brings up an issue that does not have a clear resolution, and surprisingly enough I have never seen a post about it. The IRS Regs clearly state that a beneficiary is responsible for completing the year of death RMD of the owner, and we can assume that this extends to a successor beneficiary. However, we know that RMD administration has been spotty at best and many IRA owners likely failed to take RMDs for years. When these IRAs are inherited, I have never heard of a case where the IRS required the beneficiary to make up missed RMDs of the owner prior to the year of death. There are no Regs that address this, including the excess accumulation penalty that would have been owed by the decedent.
It seems strange that the IRS wants the name of the decedent shown on an inherited IRA, yet there has been no action taken if that decedent was many years delinquent on RMDs. Most beneficiaries have no knowledge of the decedent’s RMD status, but a few beneficiaries probably discovered RMD omissions and just hoped they would not hear from the IRS about them. Apparently, none of them have.
This situation could also occur if a successor beneficiary discovers that the designated beneficiary did not take their RMDs. They inherited a larger IRA as a result, and would probably determine what the designated beneficiary RMD divisor was for the first RMD year, subtract the succeeding number of years from that divisor and again hope that would be the end of it.
Under the current IRS initiative to upgrade the many holes in RMD enforcement, it’s possible that there will be RMD recovery in some of these cases. Meanwhile, beneficiaries would likely just deal with the year of death RMD and consider any previous omissions as not their problem.