RMD from Inherited IRA
I have a client who died in 2020 who was 68 at the time and left her IRA to 2 sisters. One was 66 and the other 58.
They both would be EDB’s and can still use the stretch rules since they are not more than 10 years younger then the IRA owner.
So they would have to start taking a RMD this year but do they have an option of the 10 year rule instead? The 10 year rule would be better for them since they each plan to retire in 5-6 years and be in a lower tax bracket using the 10 year rule.
Thanks.
Permalink Submitted by Alan - IRA critic on Mon, 2021-10-04 19:07
The most recent Pub 590 B states that for deaths prior to the RBD, an EDB can opt out of LE and into the 10 year rule. Note that this interpretation has not yet been validated by official IRS Regs, but at this point the Pub is all we have.
Whether the 10 year rule would be beneficial or not depends on crunching the numbers. If no distributions are taken until year 6, the entire IRA would have to be drained in 5 years from then and could spike their marginal rate. The 10 year rule could be more costly to the younger sister, since she has more years to stretch the IRA and a lower amount withdrawn as RMDs while still working.
Permalink Submitted by Ronald Manso on Mon, 2021-10-04 20:56
So if they want to elect the 10 year rule is there an election to make or simply not taking an RMD this year is the election?
Permalink Submitted by Alan - IRA critic on Mon, 2021-10-04 22:47
There is no formal requirement, but client should watch for any custodian issued amendments to the IRA agreement, which might require an election to be made. This is very similar to the prior gray area between LE RMDs and the 5 year rule. In the past, since IRA agreements all defaulted to LE RMDs, a beneficiary who did not start LE RMDs could make up late RMDs and get out of the 5 year rule per PLR 2008-11028. This option may or may not continue.