IRA with no Named Beneficiary

Submitted by Derek Meller on Thu, 2016-11-03 21:02

We have a mother who passed away last year, had 4 daughters, and did not have a named beneficiary on her IRA account. The beneficiary therefore went to the Estate of Mothers’ name. The four daughers are now having to take an RMD before 12/31/2016 this year. Our understanding is that that the 4 children have two options:

#1 – take a full lump sum distribution
#2 – take a required minimum distribution based on mom’s life expectancy (since she was in her late 70’s) from the Estate Inherited IRA to an Estate Non-Qualified account, then split it up 4 ways to the children.

My question is… Is there any IRS code that would allow the Inherited IRA in the Estate to be split up into four separate Inherited IRAs for each of the four children?

Thank you!



Submitted by Alan - IRA critic on Thu, 2016-11-03 21:47

  • Yes, the inherited IRA can be assigned to the estate beneficiaries by the executor. Here is an article by IRA expert Natalie Choate explaining the process:    https://www.ataxplan.com/bulletin-board/notice-to-executors-and-trustees/
  • The IRS has no problem with this and have issued PLRs in support.
  • While assignment would give each child control of their own inherited IRA, the RMD divisors for all of them will be the same because they were not designated as beneficiaries on the IRA agreement. For 2016 and beyond their RMD is based on mother’s remaining life expectancy and Table I. Determine mother’s age at the end of 2015 and the divisor, reduce that divisor by 1.0 for the 2016 beneficiary RMDs and continue the 1.0 reduction for each successive year.
  • Children should name their own successor beneficiaries ASAP.

Submitted by Robert Wright on Sat, 2016-11-05 15:19

Would the LE of the mother in the year of her death be used no matter how old she was when she passed away?i.e. if she was younger than 70 1/2 when she passed away, would a different LE factor be used?

Submitted by Alan - IRA critic on Sat, 2016-11-05 17:35

If she had passed PRIOR TO her required beginning date and her estate was the beneficiary, the 5 year rule would apply. Under the 5 year rule, there is no particular RMD for any individual year, but the inherited IRA accounts must be drained by the end of the 5th year following the year of her death. Beneficiaries could only use her remaining single life expectancy if she passed ON or AFTER the required beginning date. That date is 4/1 of the year following the year she reaches 70.5. This explains why it is a bad idea not to name designated beneficiaries or qualified trusts as beneficiaries on retirement accounts.

Submitted by Robert Wright on Sun, 2016-11-06 16:24

Thanks Alan.

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