Beneficiary IRA – Daughter from Father – What Life Expectancy do we use?
My client’s father passed away in 2011 with a substantial 401k balance. We set up a Beneficiary IRA account for the daughter, and had the proceeds from the 401k rolled directly to it. This JUST happened this year. Yes, the father was over the age of 70 1/2, and was taking RMDs. And RMDs were taken prior to the Rollover this year. Our question is which factor do we use to calculate the Daughter’s RMD distribution? When her father passed, she was 58. The Life Expectancy for a 58 year old beneficiary from Table 1 of Pub 590 is 27. She is now 60..the factor is 25.2. Do we use the factor of 27, and reduce it by 1 for each year since date of death (now it would be 25), or do we just start fresh with the 25.2?
Permalink Submitted by Alan - IRA critic on Thu, 2013-11-21 17:17
Her initial RMD divisor for 2012 would be based on her age as of 12/31/2012. That divisor is then reduced by 1.0 for 2013 and for all years thereafter. There is no re start due to the transfer to an inherited IRA, ie RMD divisor will be the same as if she had retained the inherited 401k. All this assumes your client was the sole beneficiary of her father’s 401k plan.
Permalink Submitted by Glenn Andrade on Fri, 2013-11-22 05:29
Thank you for your response. There are actually 3 beneficiaries…sisters…birthdates are 2/18/47, 6/10/49 and my client (the youngest) 10/23/53. They split the pot evenly…three ways. So now I have two questions; 1) which age do we use for the divisor, and 2) since she didn’t have the rollover until this year (2013), are there any concerns about distributions for last year (2012)? Again, there was a RMD taken from the father’s 401k account before the rollovers were facilitated in June of this year.
Permalink Submitted by Alan - IRA critic on Fri, 2013-11-22 16:15
Although the inherited IRAs were not established by the deadline, it is possible that separate accounts were set up for each beneficiary within the 401k plan BEFORE the deadline of 12/31/2012. While someone could ask the plan about this, a quicker method might be to determine if DIFFERENT divisors were used for the 2012 RMDs for each beneficiary. In other words, did the beneficiaries receive the SAME amount in 2012 or different amounts with your client receiving the least because she is the youngest. If separate accounts were therefore established within the plan, it makes no difference that the IRA accounts were not set up until this year, and each daughter could continue to use their own life expectancy by determining the 2012 divisor and reducing it by 1.0 each year thereafter.