Successor bene on IRA “straddling” SECURE

Submitted by Robert Vashko on Sat, 2020-01-18 03:23

Pretty sure I know the answer on this, but could do with a consensus.

Original IRA owner dies a few years ago. Original bene opts for stretch. Original bene dies in 2019. We are now in 2020, post-SECURE, and the successor bene hasn’t taken any action yet.

(Let us assume for simplicity’s sake that the original bene took their stretch RMD for 2019 before they died)

I know that if the original bene died in 2020, the successor bene would shift to out-in-10. But since the original bene died in 2019, the successor bene can still adopt the original bene’s payout period, even though the successor bene has yet to take any action on the account as we transitioned into SECURE, correct?

Assuming that is correct, how would the answer change if the original bene *hadn’t* taken their 2019 RMD before they died? Would the fact that the successor bene failed to take the 2019 RMD by 12/31 cause them to “stumble” into SECURE’s out-in-10? I don’t think that would happen, but am worried I am missing something.



Submitted by Alan - IRA critic on Sat, 2020-01-18 03:51

Whether the original beneficiary took an RMD or not would not factor into this. While it’s not clear if the Secure Act provisions intended this or not, the Act says actually states that a designated beneficiary passing after 2019 will trigger the 10 year rule, but a successor beneficiary is NOT a designated beneficiary. Therefore, it appears that if the original beneficiary passes prior to 2020, the successor will be able to continue the RMD schedule of the original (designated) beneficiary. See Secure Act, Sec 401(b)(5) “Exception for Certain Beneficiaries”.

Submitted by Jake Brennan on Tue, 2020-01-21 17:40

The missed RMD doesn’t matter in terms of ability to maintain the stretch but shouldn’t it still be considered if they’re looking to avoid the 50% penalty for the missed RMD?  If the 2019 RMD was missed then they could avoid the penalty by going by the 5 year rule – although filing 5329 and requesting a waiver should presumably work in this case?

Submitted by Alan - IRA critic on Tue, 2020-01-21 18:25

  • Yes, any designated beneficiary is responsible for completing the year of death RMD of the owner, and likewise a successor beneficiary is responsible for completing the beneficiary RMD of the designated beneficiary for the year of the designated beneficiary’s death. The IRS Regs do not state there is any additional responsibility for completing missed RMDs other than for the year of death itself, not counting several years of missed RMDs prior to the year of death. 
  • A successor beneficiary cannot change over to the 5 year rule. They only continue the 5 year rule if the designated beneficiary elected it or was required to use it. Whatever RMDs have become the responsibility of a successor beneficiary and are late, a 5329 can be filed to request penalty waiver and is routinely granted by the IRS.

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