RMD time frame question

Submitted by Jason Hochstadt on Fri, 2020-09-04 13:59

Hello –

Have a client who asked me about the following for his relative – let’s call him Jack:

1. Jack died on 02/21/2020. His DOB was 09/15/1944 – so he was 75 when he died.
2. Jack had an IRA valued around $200k at the DOD. NO designated beneficiaries were named.
3. As such, the IRA will pass thru the estate as a probate assets.

Question: Since the above is subject to The Secure Act, in light of there being NO designated beneficiaries and Jack having already passed his Required Beg. Date, must whoever inherits the IRA (whether one or multiple individuals):

A.Take distributions over 5 years because the IRA was paid to the estate; or
B. Take distributions over 10 years (if the beneficiaries are >10 years younger – non-spouse) OR over the life expectancy of Jack (if the beneficiaries are <10 years younger - non spouse)?

Have received conflicting info. on this from other professionals.

Thank you!

Jason



Submitted by Alan - IRA critic on Fri, 2020-09-04 15:56

  • The Secure Act did not change the beneficiary RMD rules for non individual beneficiaries including an estate. As such, since Jack passed after his RBD and the IRA beneficiary clause apparently defaults to his estate as the beneficiary, the RMDs will be based on the remaining LE of Jack. Such beneficiary RMDs must begin by 12/31/2021 under current rules.
  • Since the executor will likely not want to keep the estate open for a multi year period, the inherited IRA would typically be assigned by the executor to the beneficiaries of his estate that are specified in his will, or if no will, then by state intestate provisions. 
  • Again, the Secure Act does not apply here. Hopefully, the IRA custodian will be receptive to the assignment letter from executor, and not stonewall the process. With assignment, each estate beneficiary will have their own inherited IRA to manage, but the RMDs for all these beneficiaries will continue to be based on Jack’s single life expectancy. His age is 76 in 2020, and while there is no RMD due for 2020, the single life divisor for age 76 is 12.7. Therefore, the first beneficiary RMD in 2021 will be subject to a divisor of 11.7 per current tables. 11.7 years is only slightly longer than the 10 year rule had that applied, but the 10 year rule has individual year flexibility. RMDs per Jack’s remaining LE are annual requirements, so no flexibility when taking them.  That said, an IRS proposal to change the tables for 2021 and beyond is pending, as is guidance from the IRS if the change will be adopted. The proposal would slightly increase the stetch distribution period.

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