Inherited IRA distributions/Disability
This is in regards to an Eligible Designated Beneficiary (EDB) who inherited an IRA from her mother in calendar year 2020. The beneficiary is disabled per definition from Tax Code Section 72(m)(7), and the disability is expected to be permanent.
I understand the beneficiary can stretch required minimum distribution (RMD) payments over her expectancy (but is not required to do so).
As she does not need money from the IRA at this time, is it viable to not take any distributions for several years (in accordance with the 10 year inherited IRA distribution rule), and at some point commence stretch distributions based on her life expectancy (providing IRS proof of disability at that time) – so long as this is started prior to the end of the 10 year period. Thank you.
Permalink Submitted by Alan - IRA critic on Mon, 2021-02-01 23:48
It’s not clear whether any EDB can opt out of EDB status in favor of the 10 year rule. This would be attractive for some of the older beneficiaries. However, even if the IRS Regs allow that, the beneficiary could certainly not opt back in later on. Secure Act wording does not suggest that opting out is allowed, but is the type of thing that the IRS Regs could conceivably allow.
If the beneficiary has any earned income, they could use the inherited IRA RMD to subsidize contributions to their own IRA or Roth IRA. They might then be able to apply the Savers Credit to offset any taxes due on the inherited IRA RMDs.