My mother passed away in 2014 and my father was the beneficiary of her IRA. He took 2014’s RMD and then disclaimed the inheritance; there was no secondary beneficiary. The IRA went through probate and when all was done, my sister and I had each opened inherited IRAs – equally split.

Now that we’re into 2015, we thought we had 2 choices: (1) liquidate the IRA within 5 years if we don’t take a distribution this year or (2) take an RMD every year based on our age which is what we were prepared to do (we understand that the factor reduces by 1.0 each year). Information given to me by the mutual fund company said that both my sister and I have to take distributions based our mother’s age factor. Since this factor is substantially lower that our factors, this will exhaust the IRAs significantly quicker, not to mention the tax bill that goes along with the higher RMDs.

I was somewhat skeptical when the mutual fund representative told me this and I’m aware that these reps are usually young and may not be too experienced, but I was not able to find this in IRS publication 590-B. There is something mentioned on page 11 for 2 cases to use the owner’s factor:

Owner’s life expectancy. In two cases where the owner dies on or after the required beginning date, you need to use the owner’s life expectancy.

First, you need to use it when the owner dies on or after the required beginning date and there is no designated beneficiary as of September 30 of the year following the year of the owner’s death. In this case, use the owner’s life expectancy for his or her age as of the owner’s birthday in the year of death and reduce it by one for each subsequent year.

Second, use the owner’s life expectancy in the year of death (reduced by one for each subsequent year) if it results in a longer distribution period than using your life expectancy as detailed in Table I (Single Life Expectancy) above.

The way I read this, the required beginning date occurred over 15 years ago, so regarding the first case, my mother had been taking distributions for years. There was a primary beneficiary who disclaimed it and probate awarded the remainder to my sister and I, but as for the no beneficiary by 09/30/2015, we have not come to that date yet. As for the second case, using her factor would significantly shorten the distribution period.

I have gone over this with our attorney, but it’s anything but clear to us. If we do have to use the lower factor, what could have been done such that this could have been avoided?

I know this is a long one! Thanks.