Sept 30 and Dec 31 Rules
Bob, widower, died 7-31-2016 with an IRA having the following beneficiaries:
1 His 90 year-old aunt for 10%
2. A charity for 10%
3. His 40 year-old son, Pete, for 40%
4. His 25 year-old daughter, Alice, for 40%
The son and daughter want to stretch their shares over their lives using Table I. There is no designated beneficiary on 7-31-2016 because a non-person is one of the beneficiaries. The charity’s share and the aunt’s shares are distributed to them as single amounts in January 2017. Pete and Alice are the designated beneficiaries because the are the sole beneficiaries as of Sept 30 of the year after the year the owner died. Pete and Alice have until Dec 31 of 2017, not until September 30, 2017 to split Bob’s IRA into separate shares to use their own life expediencies and not have to use the life expectancy of the oldest designated beneficiary, Pete, in calculating their RMDs. Whether Bob died before or after his RBD is immaterial. The aunt’s age is not used because her share was distributed to her in full before Sept 30, 2017. Is my understanding correct. Is there anything else that one has to know about the Sept 30 and Dec 31 Rules?
Permalink Submitted by Eric H Silverman on Thu, 2016-08-04 01:59
Suppose the charity is paid by 9-30-2017, but the aunt is paid in October of 2017. The aunt the son and the daughter are the designated beneficiaries. The son and daughter split their shares by 12-31-2017. The son and daughter are permitted to stretch the inherited IRA, BUT they must use their aunt’s life expectancy. Is my understanding correct?
Permalink Submitted by Alan - IRA critic on Thu, 2016-08-04 04:07
No. The separate account rules are effective in avoiding the restrictive conditions of the 9/30 beneficiary designation date. Therefore, the son and daughter establisned their separate accounts by the 12/31 deadline and are not affected by whether the aunt received a full distribution prior to 9/30, after 9/30 or even in some later year. Effectively, the aunt also had a separate account as soon as the other 3 beneficiaries were either paid off or established separate accounts even if the aunt had not taken a full distribution prior to that. If you are the only beneficiary left, you have a separate account, so the aunt could also have taken LE RMDs had she wanted to. The problem where none of the individuals could have used any of their life expectancies would only have affected those who had not established separate accounts by 12/31 and the charity had not been paid off by then either.