2021 Beneficiary IRA MRD?

Submitted by Rusty Nelson on Tue, 2021-09-07 21:03

I inherited a traditional IRA from my mother January 17 2020, the date she passed away. So that means I am under the 10 year rule for liquidating the beneficiary IRA by 2030. Since MRD’s were not required in 2020 due to the pandemic, I didn’t take a MRD from the inherited IRA in 2020. In 2021 and in the future, MRD’s are required for regular traditional IRA’s, but are they for beneficiary IRA’s? So the question I have is: Do beneficiary traditional IRA’s need to have MRD’s out taken every year of the 10 years (except 2020)?
Thanks for any help.



Submitted by Alan - IRA critic on Tue, 2021-09-07 22:42

No, they do not. The IRS made a glaring error in a spring edition of Pub 590B that said annual RMDs under the 10 year rule were required. That shocked everyone, and the IRS quickly revised the 590B to clarify that there are no annual RMDs under the 10 year rule (or under the 5 year rule if that applies). While you will not have annual RMDs if you are subject to the 10 year rule, you probably will want to determine a plan to avoid having to take a large taxable distribution in year 10 that could spike your marginal tax rate that year. You might decide to take any distributions even though they are not required, to control your tax bill.

Submitted by Norman Cook on Tue, 2021-09-07 23:39

Does anyone have a plan to withdraw substantial equal amounts over year 1 thru 10 with say 8% anual return on investment?  The RMD  from IRS is back end load so more money is taken out in the last few years than in the first few years.

Submitted by Alan - IRA critic on Wed, 2021-09-08 01:11

Year 1 does not start until the CY following the year of death, so there are typically 11 tax years available for use. Investment returns should be the same if the investments are the same either in the inherited IRA or after distribution. But there is complete freedom to consider each year’s tax situation in deciding how much of the inherited IRA to distribute. Some employer plan participants that are not maxing out their annual contributions will distribute more from the inherited IRA to increase contributions to their own plan and the taxes will offset, while their own plan may not have RMDs for decades, and then at the lower % of the Uniform Table.

Submitted by Rusty Nelson on Wed, 2021-09-08 01:14

Alan, Not that I don’t trust you, but I sure don’t want to run a foul concerning the IRS, so I want to be 100% sure I don’t need to take MRD’s, since there is a huge penalty for not taking MRD’s from regular IRA’s.  Could you point me to the section in document 590B where it states no MRD’s are required for beneficiary traditional IRA’s.  I looked through the 590B document, but couldn’t find the beneficiary MRD information you referred to in your answer above.Thanks for your initial answer.Rusty Nelson

Submitted by Alan - IRA critic on Wed, 2021-09-08 02:14

From P 11 of the latest Pub 590 B copied below:
“10-year rule. The 10-year rule requires the IRA beneficiaries who are not taking life expectancy payments to withdraw the entire balance of the IRA by December 31 of the year containing the 10th anniversary of the owner’s death. For example, if the owner died in 2020, the beneficiary would have to fully distribute the plan by December 31, 2030. The beneficiary is allowed, but not required, to take distributions prior to that date.”
Further, the IRS will waive almost all RMD related penalties if Form 5329 is filed requesting a waiver for “reasonable cause” after making up any late RMD.  In the past these waivers have been granted even for admissions of forgetting to take the RMD. 

Submitted by Rusty Nelson on Wed, 2021-09-08 02:16

Alan,Thanks so much for the additional information.Rusty Nelson

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