The SECURE Act Regulations
Do the new SECURE Act Regulations change in any way the 10 year RMD rule for children that inherit an IRA from a parent?
Can the children still withdraw all of the inherited IRA in the 10th year if they so choose or are they in any way required to take annual withdrawals during the 10 years following the year of death of the parent?
Thank you in advance for your help.
Permalink Submitted by Alan - IRA critic on Fri, 2022-03-18 20:21
If the parent passes after RBD, the beneficiary must take annual LE RMDs within the 10 year rule. This provision will generate protest, and it is possible that it could be changed in the final Regs.
If the parent passes prior to RBD and leaves the account to their minor child, the custodian for that child could opt out of EDB status and into the 10 year rule subject to the plan provisions allowing this option. EDB status for a minor child now ceases at age 21, and the 10 year rule would kick in at that age if not otherwise elected.
Permalink Submitted by Robert Wright on Sun, 2022-03-20 20:02
Alan,You said:”If the parent passes after RBD, the beneficiary must take annual LE RMDs within the 10 year rule.”How, exactly does this work?
Permalink Submitted by Alan - IRA critic on Sun, 2022-03-20 23:12
These annual RMDs are the same as if the beneficiary was an eligible designated beneficiary such as someone not more than 10 years younger than the decedent. They would also be calculated in the same manner as prior to the Secure Act. The IRS thinking is that since the owner was taking RMDs, they should not stop despite the 10 year rule. On the other hand, if the owner passed prior to RBD and therefore was not yet taking RMDs, then the beneficiary need not either as long as the inherited IRA was drained in 10 years. Finally, since all Roth owners are treated as passing prior to RBD, no Roth 10 year rule beneficiary need take annual RMDs.
Permalink Submitted by Robert Wright on Mon, 2022-03-21 13:02
Alan,So, if the IRA owner dies after their RBD, the child who inherits the IRA must take annual RMDs based on their LE.And the inherited IRA must be completely emptied by 12-31 of the 10th year following the year of death.And the child would use the single life table for his/her LE.So, for instance:A parent dies in 2022 at age 75.Their child is the 100% beneficiary.12-31-2022 IRA value = $10,000.00Child will be 40 in 2023.The child must take RMDs based on the following life expectancy table1) 2023 45.7 => 2023 RMD = $10,000.00 / 45.7 = $218.822) 2024 44.73) 2025 43.74) 2026 42.75) 2027 41.76) 2028 40.77) 2029 39.78) 2030 38.79) 2031 37.710) 2032 36.7 (Everything must be withdrawn from the inherited IRA by 12-31-2032)The child must at least take a small RMD each year in years 1-10.The annual RMDs will NOT empty the inherited IRA in the 10 year period; but the annual RMDs will force the beneficiary to take at least a little bit out of the inherited IRA each year.The child must withdraw everything from the inherited IRA by 12-31 of the 10th year (2032 in this case).
Permalink Submitted by Alan - IRA critic on Mon, 2022-03-21 14:45
Correct, except the initial divisor of 45.7 is reduced by 1.0 each year. So after 2023 it is 44.7, then 43.7 etc. Note that these annual RMDs are very small compared to evening out the distribution for each of the 10 years, and will therefore still leave a sizeable portion left in 2032. Therefore, beneficiaries who wish to even out the annual distribution will be taking out far more than the RMD in each of the 10 years.
Permalink Submitted by Robert Wright on Mon, 2022-03-21 18:57
And if the parent dies before their RBD and leaves the IRA to an adult child, the adult child does what? Use the 10 year rule with no annual RMDs?Thanks for all of your help.