Inherited IRA question
I have a client who Inherited an IRA in 2014. Her factor in 2015 was 8.6. In 2021, the factor is now 2.6. She passed away this year. Prior to the Secure Act, we would need to establish an Inherited Inherited IRA for her children and her beneficiaries would assume the factor of 2.6.
Now with the new rules, does my client’s beneficiaries assume the decedents factor or 2.6 or do they get the 10 years like all other Inherited IRAs under the post 12/31/19 rules?
Permalink Submitted by Alan - IRA critic on Wed, 2021-10-06 18:05
The successor beneficiaries will be subject to the 10 year rule. So here’s a case where the Secure Act actually prolonged the life of the inherited IRA because client inherited it at 82, considerably older than the average designated beneficiary, then she lived till 89. Taat said, the inherited IRA RMD % became quite high thus depleting the IRA balance.
Permalink Submitted by Robert Roselli on Thu, 2021-10-21 12:56
That’s great that my client’s beneficiaries now get 10 years to take out the remaining balance. One thing I thought of is the decedent would have an RMD this year for her Inherited IRA if she lived the whole year. Do her beneficiaries have to take out what she would have taken? I am referring to the decedent’s Inherited IRA not her Traditional IRA. I know beneficiaries have to take out what the decedent would have for a Traditional IRA, but I assume they have to take her RMD for her Inherited IRA also?
Permalink Submitted by Alan - IRA critic on Thu, 2021-10-21 15:21
Yes, you are correct. The beneficiaries have to determine what her inherited IRA RMD would have been for 2021, and they can then complete that year of death RMD in any combination between them. This is handled the same way as the year of death RMD on the IRA she owned. Of course, that 2.6 divisor for 2021 will result in a large portion of the balance being distributed to beneficiaries this year as the year of death RMD.
Permalink Submitted by Robert Roselli on Thu, 2021-10-21 16:40
The decedent’s account value as of today is $ 56,000. Her RMD is $ 22,000. Just to confirm we need to take out $ 22,000 for 2021, and then the rest doesn’t need to be distributed until 12/31/2031?
Permalink Submitted by Alan - IRA critic on Thu, 2021-10-21 19:59
The 2021 RMD is calculated using the 12/31/2020 inherited IRA balance, not today’s balance. It might still be around 22000 and if so must be distributed by year end. The rest is subject to the 10 year rule ending 12/31/2031.