RMD’s

Submitted by Jason Hochstadt on Tue, 2013-04-23 19:04

Hello,

1A. To the extent an IRA owner has begun taking RMD’s, and the IRA is being left to a non-spouse, I just want to confirm that the RMD’s for the non-spousal beneficiary/(ies) (via Inherited IRA) would be based upon the account holder’s life expectancy.

By contrast, if the account holder had not yet begun RMD’s, the non-spouse beneficiary/(ies) would be able to stretch the distributions over his/her life expectancy (the Single Life Table).

1B. Accordingly, if an account owner has begun RMD’s, the only advantage in terms of possible stretch out is if the spouse is younger (as he/she can become the owner and not need to take RMD’s until April 1 of the year after he/she turns 70 1/2). Alternatively, an older spouse may remain beneficiary of the account in order to take less in RMD’s.

2. If an account is left to multiple beneficiaries (whether all non-spouse or spouse and non-spouse), after the IRA holder has passed away what is needed to be done in order to split the IRAs? Simply establish new IRAs for each beneficiary?

If the IRA holder had already begun taking RMD’s, as per the question above, is there any ability for the beneficiaries to stretch the distributions over their life expectancy? If not, the only advantage of splitting the IRA’s would appear to be being able to name beneficiaries for these individuals (along with controlling their investments)?

Your feedback is greatly appreciated. Thank you.

Jason



Submitted by Alan - IRA critic on Tue, 2013-04-23 19:27

  • 1A) The NON SPOUSE beneficiary would use the longer of their own life expectancy or the remaining life expectancy of the owner. If they are younger than the owner, their own life expectancy would apply. If the owner passed prior to their required beginning date, then the RMD for the beneficiary is either their own life expectancy or the 5 year rule. In both answers I am assuming that the beneficiary was named on the IRA agreement and did not inherit through the estate.
  • 1B) An older SPOUSAL beneficiary may reduce RMDs if they are around 9 or 10 years older than the decedent. In all other cases, assuming ownership would produce a lower RMD. Not assuming ownership can also ruin the stretch for the surviving spouse’s successor beneficiary.
  • 2) Yes, the separate inherited IRA accounts must be established no later than the end of the year following year of owner’s death in order for each to use their own life expectancy. The spousal beneficiary can roll their share over to their own IRA at anytime following the owner’s death. But if the non spouse beneficiaries miss the deadline, then those without separate accounts must use the life expectancy of the oldest beneficiary.
  • NOTE: The key date is the required beginning date, whether the owner took our RMDs before that or not. The above rules all relate to the required beginning date. The IRA beneficiaries can use their own life expectancies whether the owner passed before or after the RBD, but creating separate accounts by the deadline is required if there are multiple beneficiaries, to avoid having to use the life expectancy of the oldest. In the case of both spouse and non spouse beneficiaries, if the deadline is not met, and if the spouse is the oldest, the non spouse beneficiaries must use the spouse’s life expectancy from then one, but the surviving spouse can change their RMD by rolling their share over in any later year.

Submitted by Jason Hochstadt on Thu, 2013-04-25 18:28

Hi Alan,Thanks for the reply.  One follow-up question based upon your response:  Assume the account holder leaves his IRA to 3 non-spouses.  The youngest beneficiary sets up an Inherited IRA in a timely manner; assume neither of the other 2 individuals do.  In this example, can the youngest beneficiary stretch the RMD’s over his life expectancy?  Or is he tied/subject to the other (older) beneficiaries establishing their Inherited IRAs in a timely manner?  Thank you.   Jason

Submitted by Alan - IRA critic on Thu, 2013-04-25 19:24

Yes, the youngest beneficiary that created the separate account by the deadline can use their own life expectancy, while the two others must use the age of the oldest of the two.

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