Multiple non-spouse beneficiaries of Inherited IRA.

Submitted by ROBERT JOHNSON on Wed, 2020-08-19 16:50

Question:

Would multiple grandchildren who inherited an IRA be subject to the new 10 year distribution rule under the following circumstances or would they be able to stretch the RMD? Would each beneficiary take an RMD based on their ages or is it based on age of oldest beneficiary?

Facts:

The original IRA account owner died in 2018 and was receiving an annual RMD.
The multiple grandchildren IRA beneficiary accounts were established prior to Dec. 31, 2019.
However:
The proceeds from the deceased IRA account were transferred to each beneficiary account after Dec. 31, 2019.

Considering the beneficiary accounts were established (though not funded) prior to Dec. 31, 2019, would they be eligible to stretch the annual RMD?



Submitted by Alan - IRA critic on Wed, 2020-08-19 17:50

  • GIven that almost all IRA custodians do not establish separate accounts until separate inherited IRA accounts are both established and funded, as of 12/31/2019 the decedent’s account still held the balance in what would not be considered separate accounts.  In other words, the separate accounts that were established but not funded by direct transfer by 12/31/2019 cannot be treated as separate accounts for purposes of determining the RMD of each beneficiary. Therefore, the beneficiary with the shortest life expectancy (the oldest) will determine the RMD divisor for all 4 of the beneficiaries. 
  • The beneficiaries can still benefit from having their separate account and can still stretch the inherited IRA, but must use the LE of the oldest beneficiary.
  • Such beneficiaries are jointly responsible for completing the 2018 year of death RMD of the decedent if that RMD had not been completed before passing.
  • It also appears that the 2019 beneficiary RMDs may not have been completed, since almost all custodians would have transferred the balance to a separate account if a beneficiary requested a distribution and had submitted the death cert and other required info. As such, the 2019 beneficiary RMDs are likely delinquent and have to be distributed ASAP and a 5329 filed by each to request a penalty waiver for 2019 (and also for 2018 if the decedent’s year of death RMD had not been completed.
  • The 10 year rule under the Secure Act is based on the DOD and therefore does not apply to this situation.

Add new comment

Log in or register to post comments