SECURE and multiple IRA beneficiaries
Under pre-SECURE, multiple beneficiaries had to be established by Sept 30 of the year following the year of death and separate inherited IRA accounts set up by 12/31 of the same year. A failure to do this, resulted in the IRA being distributed to each beneficiary at the rate of the age of the oldest beneficiary.
How would this work under SECURE?
If all beneficiaries were non-spouse and >10 years younger then each would be subject to the 10 year rule, I’d imagine.
But let’s say a brother and two adult children are named equally, with the brother <10 years younger than the deceased IRA owner, and separate inherited IRA were not set up by 12/31. Would the distributions come out at the rate of the brother over his Table I life expectancy to all beneficiaries?
Something tells me that all except the brother would have to take out their % using the 10 year rule even though separate accounts had not been set up….but thought I’d ask anyway. If not, this could create a great workaround to the 10 year rule….just have all single large TIRA owners name someone <10 years younger for 1% of the IRA and distribute the rest to adult children at the much longer period rate.
BruceM
Permalink Submitted by Alan - IRA critic on Thu, 2020-01-16 23:08
Permalink Submitted by Paul Jacokes on Thu, 2020-02-06 18:21
Alan, if I understood you, you’re saying that a designated beneficiary will no longer be allowed to elect remaining LE of the decedent. Isn’t it clear that this, absent a “technical correction” to the statute, is still available in the case of beneficiaries that are not “designated beneficiaries”?” A 16-year stretch with annual RMDs may or may not be preferable to an absolute 10-year deferral, depending on the circumstances, but why would the IRS potentially allow a non-DB a better outcome than a DB? And couldn’t the DB become a non-DB by failing to meet the technical requirements of the regs (e.g., failing to provide the custodian with required documentation)? Thanks,Paul
Permalink Submitted by Alan - IRA critic on Fri, 2020-02-07 02:53
Paul, yes a non DB in some cases would get more than 10 years under current IRS Regs. That is why the IRS may be inclined to alter those Regs, since they already have several revisions to the current Regs that must be made to reflect the clear requirements of Secure. It makes sense to also eliminate this disparity in favor of non DBs that encourages actions to disqualify trusts or leave accounts to estates once the employee passes the RBD. One way to do this is to change the distribution period for deaths after the RBD for non DBs to the remaining LE of the decedent, but not more than 10 years. That way, only EDBs can stretch for more than 10 years.
Permalink Submitted by BruceM on Thu, 2020-01-16 23:43
Thanks AlanA follow up on spouse as sole beneficiary…Do all the spousal options remain? That is….1. Roll into own and treat as own (this I know is an option)2. Begin lifetime withdrawal using Table I and re-enter table each year (pretty sure this remains)3. Wait until deceased spouse would have attained 72 and begin at her (survivors) life expectancy from Table I4. 5 year rule if spouse died prior to RBD And would the surviving spouse have the option of the 10 year rule instead of the 5 year rule?I realize a lot of this is not yet known.ThanksBruceM
Permalink Submitted by Alan - IRA critic on Fri, 2020-01-17 04:02
Options 1, 2 and 3 remain as before with no beneficiary RMDs until spouse would have been 72, up from 70.5. The 5 year rule is gone except for non DBs, and I expect the 10 year rule would also be off the table since spouses are eligible DBs, although this is not totally clear since the IRS is going to have to revise some of the existing Regs. to fit clearly with Secure. And these questions are relatively simple compared to the issues that many existing trusts will have with Secure.