RMDs

Submitted by Jason Hochstadt on Thu, 2013-07-25 13:10

Hello,

I just wanted to confirm the nature of RMDs for an account whereby the owner has passed.

1. If the owner has passed away prior to his Required Beg. Date, the beneficiary may use his/her own life expectancy. If a spouse, he/she may roll it into his/her own IRA and/or remain a beneficiary.

2. If the owner has away subsequent to his Required Beg. Date, and has already commenced taking RMDs, must the beneficiary continue with the schedule being used by the account owner? If the spouse, and the spouse is younger, can the spouse use his/her own life expectancy? Same question for a non-spouse.

In both instances above the beneficiary may be either a conduit or accumulation trust (the conduit trust would be required to distribute at least the RMDs each year per the age of the oldest primary beneficiary; the accumulation trust is left to the discretion of the trustee as to whether any distributions must be made from the trust; however, it must consider the oldest beneficiary whether primary or contingent.

My primary question deals with the account owner who passes away at 75 (after RBD), versus 65 (before RBD).

Thank you.

Jason



Submitted by Alan - IRA critic on Thu, 2013-07-25 17:55

The beneficiary life expectancy can be used regardless of when the IRA owner passes, although for trusts it depends on whether the trust is qualified or not and the oldest beneficiary’s age is used. When owner passes after RBD, beneficiary can use the longer of owner’s remaining life expectancy or the beneficiary’s, but since most beneficiaries are younger than the owner, the beneficiary’s age would produce the longer stretch. Answer to 2. above is therefore “No” for first question and “Yes” for the last 2. Spousal beneficiary can choose to roll over to their own name at anytime after owner’s death.



Submitted by Jason Hochstadt on Sun, 2013-08-11 19:35

Hi Alan,Thanks for the reply.1. Is there any way with a conduit trust as an IRA beneficiary to split the IRA and not have to use the oldest primary beneficiary’s age?  2. Conversely, is there any way with an accumulation trust as an IRA beneficiary that the ages of the contingent IRA beneficiaries do not have to be considered along with the primary beneficiaries?  3. Finally, if the beneficiary is the spouse and she is older than the IRA owner and wishes to remain as beneficiary, would RMDs not be required/be postponed until April 1st of the year following her turning 70 1/2 – as opposed to 12/31 of the year following death for an Inherited IRA/non spousal IRA?  If the spouse remains as beneficiary and does not retitle the account into her own name via roll over, upon her demise does this mean the beneficiary(ies) would be those under the husband’s Last Will/Revocable Living Trust – with the spouse unable to name her own beneficiaries if she does not roll into her own name?   In general, if the spouse is older than the IRA owner who passes, would it be preferrable for her to remain as beneficiary; versus her becoming the owner if she is younger than the IRA owner who passes?Thank you.



Submitted by mk foss on Mon, 2013-08-12 00:35

  1.  In order for conduit trust beneficiaries to use their own life expectancies, each conduit trust must be named as part of the benenficiary designation. Try 1/5 to Trust for Mikey; 1/5 to Trust for Alan; 1/5 to Trust for Bruce; etc

 

  1.  2. A recent private ruling said that if there is no contingent beneficiary for a trust, the named beneficiary’s life expectancy is the only one considered. Of course a private ruling doesn’t apply to everyone and many do not want to leave contingencies open. If an accumulation trust provided that no beneficiary could ever be older than the initial beneficiary the lives of contingent beneficiaries could be disregarded.

  

  1. 3. When a pouse beneficiary rolls over an IRA to his/her own account – they start distributions at the usual required beginning date and use the uniform table for RMDs. If the account is taken as a beneficiary, the single life table is used. Form comparison, the factor for a 70 year old from the single life table is 17.0 but it is 27.4 from the uniform table. An RMD of 3.64% of the balance is better than 5.88% if you’re going for the maximum stretch.

 



Submitted by Alan - IRA critic on Mon, 2013-08-12 01:49

With respect to Point 3 – if the only concern is keeping the RMD at a minimum, the ages of the decedent and the beneficiary are factors assuming that any named trust beneficiary is qualified. If the owner passes prior to age 70.5, a sole spousal beneficiary including a sole beneficiary of a qualified trust can delay RMDs until the year the deceased spouse would have reached 70.5. Once that year is reached, the comparison changes to the two ages. When the surviving spouse is older the age of the decedent can be used if death occurs after the RBD. Where this gets complex is that that using the decedent’s remaining life expectancy requires a 1.0 divisor reduction each year, whereas a sole spousal beneficiary gets to “recalculate” life expectancy and the divisor reduces by less than 1.0. At some point an RMD based on the decedent may no longer be lower than the RMD based on the surviving spouse’s recalculated age or even more likely would not be lower than the RMD assumed by assuming ownership if the trust can be terminated and the IRA rolled over. There are all kinds of age based variables at work here, and it is possible to go from beneficiary based RMDs to ownership RMDs under the Uniform Table, but never in reverse. Each situation must be analyzed based on it’s characteristics.



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