RMD For Deceased IRA Owner
I have a client who at the end of 2020 was 77 years old and taking RMD’s regularly since turning 70&1/2. She has three IRA accounts in place. One is with a brokerage firm, worth approximately 1.1Mil and has two step grandchildren (over age 21) as designated beneficiaries. The other two IRA accounts are worth approximately 370K, are with insurance companies as custodians and have qualified charities as designated beneficiaries. She died January 1st of this year – Like this past Friday. So my questions are regarding the RMD’s. Since she lived a day in 2021, I assume she will have an RMD issue for 2021. With the brokerage account going to the step grandchildren, can those beneficiaries take distributions to meet the 2021 RMD requirement and the remaining balance set up as inherited IRA’s subject to the new 10 year rule ? With the other two IRA’s going to charities, will there even have to be any distributions for RMD purposes or will distributions have to be made to her estate to meet the 2021 RMD before the remaining funds are turned over to the charities ? Any thoughts on this would be greatly appreciated.
Permalink Submitted by Alan - IRA critic on Tue, 2021-01-05 00:46
The year of death RMD can certainly be entirely satisfied by distributing the IRA annuities to the charities. Therefore, the individual beneficiaries can establish inherited IRAs without the need to participate in the 2021 year of death RMD. They will be subject to the 10 year rule, therefore there are no annual RMDs until 2031 when these inherited IRAs must be drained. Due to the amount each will inherit, to avoid a massive tax bill in 2031, they should develop a plan to take some distributions throughout this period. They have 11 tax years in which to spread the distributions as they see fit.
If they are under 26 and disabled or enrolled in higher education, they probably qualify as Eligible Designated beneficiaries in which they could take life expectancy RMDs until the higher education ends or they reach 26, and the 10 year rule applies from there. This allows them to stretch the IRA somewhat longer.
The estate is never involved if there are named beneficiaries as is the case here.