Inherited IRA Trust RMD

Submitted by Alex Silver on Wed, 2020-12-16 02:55

My wife’s father passed away recently. He had an IRA account that the beneficiary of that account was a trust. My wife and her stepmom are co-trustees of this trust. Trying to figure it out the RMD for this trust. The stepmom is the income beneficiary and the money in this account is earmarked for her until she’s gone. Then it passes to my wife. We’re trying to figure out the minimum amount that the step mom is going to have to take out of this inherited IRA from the trust. does anybody know? Does this money need to be removed within 10 years? The financial planner from Wells Fargo said that it does not since it is a trust beneficiary. I’m having a hard time with this because it’s an inherited IRA that the beneficiary was a trust which is not common.



Submitted by Alan - IRA critic on Wed, 2020-12-16 04:03

  • While the IRS has not yet sewn up many of the loose ends of the Secure Act, the consensus for this situation is that the trust will be subject to the 10 year rule, since father’s wife is not the sole beneficiary of the trust. Therefore, the IRA will have to be drained by 12/31/2030 regardless of whether  stepmom lives that long. 
  • Under the 10 year rule, there is no annual RMD or other distribution requirements, but in order to prevent a large taxable income of waiting until year 10, it is best to take distributions annually to spread out the taxes. 
  • However, the above assumes that the trust is qualified for look through treatment. if the trust is not qualified the 10 year rule will not apply because the trust will not be treated as a designated beneficiary. Rather, the distribution period will be based on the remaining life expectancy of father in law assuming he passed after his RBD, and there will be annual RMDs. The remaining LE of father in law could be more or less than 10 years. If Father in law passed prior to his RBD and the trust is not qualified for look through, then the 5 year rule will apply. Therefore, 3 possibilities exist here depending first on whether the trust will be qualified, and if not when father in law passed relative to his RBD.

 

Submitted by Alex Silver on Thu, 2020-12-17 00:40

Thanks for this info. Everything I am seeing confirms this info but I wonder why the person at Well Fargo is telling us otherwise. Can you point me to a creditable source for this info? I am seeing a lot about just the plane inherited IRAs but not much about happen happens to them when the benificataly is a trust. 

Submitted by Alan - IRA critic on Thu, 2020-12-17 01:39

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