Beneficiary IRA’s

Submitted by Janis Sleeter on Wed, 2020-01-08 20:19

We have several clients where mom or dad died before 12/31/2019 and the kids did beneficiary IRA’s.
The RMD’s have been based on their ages and the Single Life Expectancy Table factor and deducting one year each year thereafter.
At least one thing I have read has questioned if that keeps going as is or runs into the 10 year rule.
Just double checking and appreciate your opinion.



Submitted by Alan - IRA critic on Thu, 2020-01-09 00:48

It keeps running as before. However, once these beneficiaries pass THEIR successor beneficiaries will become subject to the 10 year rule, but the 10 years starts after the beneficiary death. Therefore, depending on the age of beneficiary when they passed, the 10 years their successor gets could actually be longer than completing the RMD schedule of the beneficiary.  However, if the beneficiary was young and also died young, the successor’s 10 years would fall well short of the distributon period from continuing the beneficiary’s schedule. So Secure will have varying implications for successor beneficiaries.

Submitted by Adman Gilly on Thu, 2020-01-09 05:58

Post SECURE act Individual Non-Spouse Beneficiary of an Inherited IRA will have 10-year to complete full distribution. But when the Beneficiary dies, would same 10-year period gets locked? For example, Original IRA owner dies in 2020, then by 12/31/2031 the beneficiary must fully distribute assets. In case the beneficiary dies in 2026- will next successor beneficiary gets another 10 years (by 2037 or 2031 remains)?

Submitted by Alan - IRA critic on Thu, 2020-01-09 14:04

No, the 10 year rule for the original beneficiary is not extended for the successor beneficiary. The successor would also be bound by the 12/31/2031 deadline to drain the inherited IRA. This differs from successor beneficiaries who inherit an already inherited IRA pre Secure that is being distributed over the LE of the original beneficiary. In that case the successor does get a new 10 year distribution period. In other words, once a beneficiary is subject to the 10 year rule, successor beneficiaries are also bound by that deadline.

Submitted by Adman Gilly on Fri, 2020-01-10 06:21

Thanks. Existing Inherited Beneficiary IRA (stretch IRA with 38 year Young Beneficiary LE period) continues without SECURE Act impact. But say beneficiary dies after 3 years, can successor beneficiary continue with remainder 35 years of deceased beneficiary distribution period or will he/she be subjected to 10 year rule?

Submitted by Alan - IRA critic on Fri, 2020-01-10 15:11

In this case the existing designated beneficiary inherited the account prior to 2020, pre Secure. However, if the beneficiary passes after 3 years, the successor beneficiary is subject to the 10 year rule, therefore the inherited IRA must be drained after a total of 13 years. This is a specific provision of the Secure Act which deals with accounts that were already inherited. 

Submitted by Adman Gilly on Sun, 2020-01-12 04:06

You are amazing, thanks for the valuable insights! Couple of interesting points:(i.) If existing Beneficiary distribution period was 23 years, successor beneficiary will get only 10 years (reduced); but if the period was 3 years, then successor beneficiary will get 10 more years (increased). Do you feel law should have been whichever is lesser, to drain the assets faster? :)(ii.)  It would have simpler if the rule was consistent to just apply 10-year rule for any newly established Inherited IRAs after 12/31/2019 (regardless of date of death), meaning if IRA owner had died on 2/15/2019 and Inherited IRA was established say later in 2020 or 2021, would Non-Spousal Individual Bene gets Stretch IRA benefit to use his LE because death occurred prior to SECURE act effective date…!?

Submitted by Alan - IRA critic on Sun, 2020-01-12 15:09

  • The IRA is considered inherited on the date of death regardless of how long it takes to establish inherited IRA accounts. Therefore, there is no incentive to delay reporting an IRA owner’s death. In fact delaying too long will result in loss of the separate account rules when there are multiple beneficiaries. 
  • Most non spouse beneficiaries will not qualify as “eligible beneficiaries”, therefore they start with the 10 year rule and a successor beneficiary does not get another 10 years. In these cases the IRA must be drained within 10 years after the owner’s death.
  • Only eligible beneficiaries such as disabled, those within 10 years of age of the owner, and minor children (limited by age of majority) can use their life expectancy as before. It would have been unfair to the disabled if they were forced into the 10 year rule, and special needs trusts would lose value. The same is true for a minor who loses their parent, as the delay of the 10 year rule for these minors gives them time to complete their education and get a job before the lump sum distribution. During this time they could use the inherited IRA to subsidize contributions to their own retirement plans and the tax savings for that would offset the inherited IRA distribution taxes. 
  • The most time a successor beneficiary will have is 10 years, but those inheriting from a beneficiary already under the 10 year rule only get to complete the time that was left on the first 10 year period.

Submitted by Adman Gilly on Mon, 2020-01-13 03:24

That is interesting. For 2019 deceased accounts, if Inherited IRAs are delayed and not established by Dec. 31, 2020, how the rule gets applied in case of multiple beneficiaries?

Submitted by Alan - IRA critic on Mon, 2020-01-13 03:37

It does not matter when the account are established. The date of death determines whether the Secure Act applies or not. Therefore, your question falls under the old rules. For death in 2019 and no separate accounts were established by the deadline, all beneficiaries get the life expectancy stretch, however it is based on the age of the oldest of the beneficiaries.

Submitted by Adman Gilly on Mon, 2020-01-13 12:34

IRA Owner has designated Spouse 50%, Daughter 25% and Grandson 25% as beneficiaries. If IRA owner had died during 2019 and after 1 year, say in 2021 when Inherited Beneficiary IRAs are established would Spouse’s age considered for all? Can spouse create a new IRA and rollover even after 1 year?

Submitted by Alan - IRA critic on Mon, 2020-01-13 16:52

If inherited IRAs were not established by the end of 2020, the deadline was missed. The 2020 beneficiary RMDs would be based on the age of the oldest beneficiary. However, the surviving spouse can do a spousal rollover at any time after they establish an inherited IRA. If this is done in 2020 or later the surviving spouse avoids beneficiary RMDs for that year and will switch to the Uniform Table which will produce lower RMDs and no RMD until the spouse reaches 70.5 (or age 72 if spouse is not yet 70.5 by 1/1/2020.

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