Permalink Submitted by Robert Roselli on Fri, 2019-12-27 20:46
So it’s almost business as usual for 2020. For Inherited IRAs, the rule is changing for beneficiaries of people who die this year. since they don’t have to take RMDs until 2021, it appears nothing is different for 2020.For Traditional IRAs, the only difference for 2020 seems to be that people who turn 70.5 after 01/01/2020, can hold off until they are 72.
Permalink Submitted by Alan - IRA critic on Fri, 2019-12-27 20:57
2020 TIRA contributions can be made without age limit as long as they have earned income. There are some other changes that do not affect many as well such as non tuition fellowship and stipend payments being eligible for IRA contributions.
Permalink Submitted by Robert Roselli on Fri, 2019-12-27 21:02
If a descendant dies 01/10/2020 and has non-spouse beneficiaries, there is a 10-year clock, no more stretch IRA.When does the 10-year clock start? Is it DOD of the descendant, 12/31 of the year they die, or 12/31 of the following year (same as it is now)?
Permalink Submitted by Alan - IRA critic on Fri, 2019-12-27 23:07
Clock starts 1/1 of the following year and ends 12/31 of the 10th full year after the year of death. Of course, certain non spouse beneficiaries might meet the definition of “eligible beneficiary”, and still be able to stretch as before.
Permalink Submitted by Chuck 2009x on Mon, 2019-12-30 14:10
The proposed changes can be found here (along with the proposed tables);https://www.federalregister.gov/documents/2019/11/08/2019-24065/updated-life-expectancy-and-distribution-period-tables-used-for-purposes-of-determining-minimum I did find one seeming contradiction in the language, having to do with a “transition rule” whereby the RMD divisor would change for someone already taking distributions. One paragraph states:This transition rule applies in three situations: (1) The employee died before the required beginning date with a non-spousal designated beneficiary (so that the applicable distribution period is determined based on the remaining life expectancy of the designated beneficiary for the calendar year following the calendar year of the employee’s death)But then in the following paragraph, it gives an example of an original owner who dies at age 80 (after required beginning date), whose non-spousal bene is 75. It says that the bene’s RMD divisor would reset in 2021 if the new regulation is approved.https://www.federalregister.gov/d/2019-24065/p-40https://www.federalregister.gov/d/2019-24065/p-40
Permalink Submitted by Alan - IRA critic on Mon, 2019-12-30 15:11
Chuck, I don’t see any error, but the way the answer is organized can be confusing. As stated, the reset applies to 3 different situations, one for deaths prior to the RBD and two for deaths after the RBD. The IRS organized this explanation to conform with the prior Regs 1.401(a)(9)-5 explaining these 3 situations. The reason for 2 different situations for death AFTER the RBD, is that one is based on the age of a non spouse beneficiary (1.0 reduction) and the other with a sole spousal beneficiary that can recalculate, so no 1.0 reduction). I think they only provided one example with actual ages.
As I recall, this reset method is the same as applied in the 2002 RMD Regs that included a new mortality table, the last new table before this one. In all cases, for the beneficiary (non spouse, spouse, or non individual) the beneficiary must go back to the year of death, get the new divisors that would have applied had the new tables been in force, and then determine what the new divisors will be starting in 2021. This way all existing beneficiaries not under the 5 year rule will realize the RMD reductions from the new tables.
Permalink Submitted by David Mertz on Mon, 2019-12-30 16:32
I see the same contradiction that Chuck does. The three cases that the commentary indicates that transition rule applies does not include the case where the participant died after RBD and the beneficiary is a non-spouse younger than the participant, yet the example is for exactly this case (assuming that the 80-year-old’s RBD was not delayed due to still working). Given the rest of the commentary, I think this fourth case was an error of omission in the commentary where it lists only three cases. Looking at the proposed regulations, there appears to be no mention of there being only three cases where the transition rule applies so it seems that there are really four cases where it applies.
Permalink Submitted by Alan - IRA critic on Mon, 2019-12-30 17:17
Yes, they failed to list the 4th situation, but then provided an example of it, indicating the correct intent. This should be corrected after public comment. You guys have 8 days left to comment 🙂
Permalink Submitted by Alan - IRA critic on Tue, 2019-12-31 15:10
Thanks. There is another situation which is probably best omitted from the proposal since the proposal is already complicated. Also, it’s a rare combination.
Taxpayer passes after RBD leaving IRA to older spouse. Surviving spouse fails to assume ownership and takes beneficiary distributions. They start using the deceased spouse’s age for the divisor, reducing by 1 each year. Eventually, however their own divisor, which is recalculated (not reduced by 1.0) catches up and the RMD from there is based on the surviving spouse’s age. The year of transition (if any) depends on the age difference. Therefore, to reset the RMD the surviving spouse would have to go back to the first beneficiary RMD and track both the decedent based divisor against their own to determine if the divisor changed over to the surviving spouse’s. Again, due to complexity and infrequent application, the proposal best overlooks this one.
Permalink Submitted by Chuck 2009x on Tue, 2019-12-31 17:49
Actually, I think I found something that covers it. It’s near the end, in the 2nd and 3rd paragraphs after the tables.
(2) Application to life expectancies that may not be recalculated—(i) Applicability of current tables. If an employee died before January 1, 2021, and, under the rules of § 1.401(a)(9)-5, the distribution period that applies for a calendar year following the calendar year of the employee’s death is equal to a single life expectancy calculated as of the calendar year of the employee’s death (or, if applicable, the following calendar year), reduced by 1 for each subsequent year, then that life expectancy is reset as provided in paragraph (f)(2)(ii) [the next paragraph] of this section. Similarly, if an employee’s sole beneficiary is the employee’s surviving spouse, and the spouse dies before January 1, 2021, then the spouse’s life expectancy for the calendar year of the spouse’s death (which is used to determine the applicable distribution period for later years) is reset as provided in paragraph (f)(2)(ii) of this section.
(ii) Determination of applicable distribution period. With respect to a life expectancy described in paragraph (f)(2)(i) [the prior paragraph] of this section, the distribution period that applies for a distribution calendar year beginning on or after January 1, 2021, is determined by using the Single Life Table in paragraph (b) of this section to determine initial life expectancy for the age of the relevant individual in the relevant calendar year and then reducing the resulting distribution period by 1 for each subsequent year. For example, assume that an employee died at age 80 in 2018 and the employee’s designated beneficiary (who was not the employee’s spouse) was age 75 in the year of the employee’s death. For 2019, the distribution period that would have applied for the beneficiary was 12.7 years (the period applicable for a 76 year old under the Single Life Table in formerly applicable § 1.401(a)(9)-9), and for 2020, it would have been 11.7 years (the original distribution period, reduced by 1 year). For 2021, the applicable distribution period would be 12.0 years (the 14.0 year life expectancy for a 76 year old under the Single Life Table in paragraph (b) of this section, reduced by 2
Permalink Submitted by Alan - IRA critic on Tue, 2019-12-31 18:53
The posted provisions describe how the reset is done for both non recalculated and recalculated life expectancies. But I don’t see where it addresses a cross over from non recalc to recalc for the same beneficiary. That only happens for spousal beneficiaries that are older than the participant, and only when the participant passes after the RBD. The reset divisor for each method for each year would have to be compared and once the divisor using the spousal beneficiary crosses over and is higher than the one based on the decedent’s LE, then the beneficiary’s LE applies for the duration. This can only occur when the beneficiary is spousal and older. The crossover situation is most likely to occur the longer the beneficiary lives and the lesser the age difference between decedent and beneficiary. In summary, this is more work because two lives must be tracked until the higher divisor switches over to that of the surviving spouse.
Permalink Submitted by Alan - IRA critic on Thu, 2019-12-26 14:54
Not yet. There is no chance that the tables will be approved for 2020 RMDs, but a good chance that they will be in place for 2021 RMDs.
Permalink Submitted by Robert Roselli on Fri, 2019-12-27 20:46
So it’s almost business as usual for 2020. For Inherited IRAs, the rule is changing for beneficiaries of people who die this year. since they don’t have to take RMDs until 2021, it appears nothing is different for 2020.For Traditional IRAs, the only difference for 2020 seems to be that people who turn 70.5 after 01/01/2020, can hold off until they are 72.
Permalink Submitted by Alan - IRA critic on Fri, 2019-12-27 20:57
2020 TIRA contributions can be made without age limit as long as they have earned income. There are some other changes that do not affect many as well such as non tuition fellowship and stipend payments being eligible for IRA contributions.
Permalink Submitted by Robert Roselli on Fri, 2019-12-27 21:02
If a descendant dies 01/10/2020 and has non-spouse beneficiaries, there is a 10-year clock, no more stretch IRA.When does the 10-year clock start? Is it DOD of the descendant, 12/31 of the year they die, or 12/31 of the following year (same as it is now)?
Permalink Submitted by Alan - IRA critic on Fri, 2019-12-27 23:07
Clock starts 1/1 of the following year and ends 12/31 of the 10th full year after the year of death. Of course, certain non spouse beneficiaries might meet the definition of “eligible beneficiary”, and still be able to stretch as before.
Permalink Submitted by Chuck 2009x on Mon, 2019-12-30 14:10
The proposed changes can be found here (along with the proposed tables);https://www.federalregister.gov/documents/2019/11/08/2019-24065/updated-life-expectancy-and-distribution-period-tables-used-for-purposes-of-determining-minimum I did find one seeming contradiction in the language, having to do with a “transition rule” whereby the RMD divisor would change for someone already taking distributions. One paragraph states:This transition rule applies in three situations: (1) The employee died before the required beginning date with a non-spousal designated beneficiary (so that the applicable distribution period is determined based on the remaining life expectancy of the designated beneficiary for the calendar year following the calendar year of the employee’s death) But then in the following paragraph, it gives an example of an original owner who dies at age 80 (after required beginning date), whose non-spousal bene is 75. It says that the bene’s RMD divisor would reset in 2021 if the new regulation is approved.https://www.federalregister.gov/d/2019-24065/p-40https://www.federalregister.gov/d/2019-24065/p-40
Permalink Submitted by Alan - IRA critic on Mon, 2019-12-30 15:11
Permalink Submitted by David Mertz on Mon, 2019-12-30 16:32
I see the same contradiction that Chuck does. The three cases that the commentary indicates that transition rule applies does not include the case where the participant died after RBD and the beneficiary is a non-spouse younger than the participant, yet the example is for exactly this case (assuming that the 80-year-old’s RBD was not delayed due to still working). Given the rest of the commentary, I think this fourth case was an error of omission in the commentary where it lists only three cases. Looking at the proposed regulations, there appears to be no mention of there being only three cases where the transition rule applies so it seems that there are really four cases where it applies.
Permalink Submitted by Alan - IRA critic on Mon, 2019-12-30 17:17
Yes, they failed to list the 4th situation, but then provided an example of it, indicating the correct intent. This should be corrected after public comment. You guys have 8 days left to comment 🙂
Permalink Submitted by Chuck 2009x on Tue, 2019-12-31 13:59
I left a comment.
Permalink Submitted by Alan - IRA critic on Tue, 2019-12-31 15:10
Permalink Submitted by Chuck 2009x on Tue, 2019-12-31 17:49
https://www.federalregister.gov/d/2019-24065/p-95https://www.federalregister.gov/d/2019-24065/p-95 https://www.federalregister.gov/d/2019-24065/p-95
Permalink Submitted by Alan - IRA critic on Tue, 2019-12-31 18:53
The posted provisions describe how the reset is done for both non recalculated and recalculated life expectancies. But I don’t see where it addresses a cross over from non recalc to recalc for the same beneficiary. That only happens for spousal beneficiaries that are older than the participant, and only when the participant passes after the RBD. The reset divisor for each method for each year would have to be compared and once the divisor using the spousal beneficiary crosses over and is higher than the one based on the decedent’s LE, then the beneficiary’s LE applies for the duration. This can only occur when the beneficiary is spousal and older. The crossover situation is most likely to occur the longer the beneficiary lives and the lesser the age difference between decedent and beneficiary. In summary, this is more work because two lives must be tracked until the higher divisor switches over to that of the surviving spouse.