inherited ira beneficiary = estate rule on first withdrawal
Decedent did not provide a beneficiary for his IRA so his Estate was the beneficiary and five year rule for completing withdrawals applies. The Estate of course will pass this income to the Estate’s beneficiaries in a manner that will minimize income tax. The lawyer handling the Estate believes an initial withdrawal must be made within a year of death. Is that correct? Our original plan was to start withdrawing in 2018, but if this is correct we’ll have to withdraw a token amount in 2017.
Permalink Submitted by Alan - IRA critic on Sat, 2017-10-21 21:33
There is no requirement to take a distribution within a year of death or in the year of death. Under the 5 year rule there is no requirement for a distribution until the final year. The lawyer may be thinking about a non qualified annuity RMD using life expectancy. Normally, to reduce taxes about 6 equal distributions in 6 calendar years will control taxes the best. However, the executor will probably not want to keep the estate open for very long, so would assign the IRA to the beneficiaries of the estate. That way, each beneficiary could determine their own withdrawal schedule with their inherited IRA still needing to be drained by the end of the 5th year following the year of death.