Inherited IRAs and Sep 30 deadline

Submitted by G Grover on Mon, 2014-10-27 19:53

My sibling passed away last year and left behind a couple of IRAs. There was no remaining designated beneficiary, so the money was rolled over to separate IRAs in the name of the estate. Finally, on Sep 20 of this year (year after death), the money was rolled over to an inherited IRA with me as the beneficiary and his name on the IRA as the original owner. I have 2 questions

1. As long as the rollover to an inherited IRA was done before Sep 30, can I take RMDs using my life expectancy rather than the 5 year rule?
2. There is a second IRA that was not rolled over by Sep 30. Can it be combined with the first one listed above and can I use the same distribution rule as in #1? Or do I need to create a second inherited IRA and use the five year rule?

Thanks for your help



Submitted by Alan - IRA critic on Mon, 2014-10-27 23:13

  1.  No. Whenever the estate is the actual or default beneficiary, the beneficiary of the estate cannot use their own life expectancy for RMDs even though the estate has assigned the IRA to them. If your sibling passed prior to the required beginning date, you are subject to the 5 year rule under which the entire IRA must be drained by 12/31/2018. If death was after the required beginning date you may use sibling’s remaining life expectancy for RMDs. Once the divisor is determined for 2014, it is reduced by 1.0 for each year after 2014.
  2. The 9/30 and 12/31 separate account deadlines do not apply to this question since there were no designated beneficiaries named on the IRA. This IRA could be combined with the first IRA since they receive identical RMD treatment and were inherited form the same decedent. The same rules would have applied to other estate beneficiaries as well if the estate had more than one beneficiary.

Submitted by G Grover on Thu, 2014-10-30 13:12

Thank you for the information – this is more helpful than the 3 tax accountants I have talked to! Do the distributions in this case have to start by 12/31 the year after death, or is the only requirement that it must by fully drained in 5 years? So for  example, can I not do any distributions for 4 years and take out all the money in the 5th year (I realize this is not the most tax efficient way to do it) Thanks

Submitted by Alan - IRA critic on Thu, 2014-10-30 20:26

First, let me correct something. If the RMDs are based on your sibling’s age, the divisor is determined by using the single life table and your sibling’s age in the year of death (2013). For the 2014 RMD, that divisor is reduced by 1.0 and another 1.0 for each year thereafter. But from your question, the 5 year rule apparently applies. Under that rule, there is no requirement for any particular year, the only requirement would be that the IRA is drained by 12/31/2018.

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