Inherited IRA RMDs and RBD
2 Questions:
1. Did the calculations for Inherited IRA RMDs change with the new Single Life Expectancy Tables? So, if my client who has been taking Inherited IRA RMDs since 2017, does her calculation change or are we still subtracting 1 from the divisor each year?
2. Is the RBD still April 1st of the year following the year the owner turns 72? So, if a client turned 72 on 6/1/21, his RBD is still 4/1/22?
Permalink Submitted by Alan - IRA critic on Thu, 2022-03-24 14:54
The new tables result in the divisor being reset to where it would have been if the new tables were in force when the RMDs began (2017). From that new starting point, 1.0 is still subtracted each year from the new initial divisor.
Yes, that is correct presuming client is the owner, not the beneficiary.
Permalink Submitted by Paul Merritt on Fri, 2022-03-25 13:44
My client passed in 2000. He was 74, however, since he was working full time and not a 5% owner of the company where he worked, he had not been taking any RMDs from his 401k plan. In fact he was still contributing. When he passed, he was still a fulltime employee. His child inheritied 100% of the 401k plan balance. Will the child be subject to the new yearly RMD requirement since the participant was over 72 or will they be excempt since the participant was still working and not taking RMDs even though he was past RBD?
Permalink Submitted by Alan - IRA critic on Fri, 2022-03-25 14:35
There will not be a year of death RMD since client passed prior to RBD. Child will be subject to beneficiary RMDs, but they are affected by date client passed and when child does a direct rollover to an inherited IRA. What was the approx date of client’s death?
Permalink Submitted by Paul Merritt on Fri, 2022-03-25 15:54
Feb 2020
Permalink Submitted by Alan - IRA critic on Fri, 2022-03-25 17:41
So 2020 instead of 2000. The Secure Act determines child’s RMDs, but so does the plan provisions. If a direct rollover to an inherited IRA was not completed by 12/31/2021, the plan provisions for RMD will control future beneficiary RMDs. Since client passed in 2020 and prior to RBD, there is no 2020 year of death RMD. The child will be subject to the 10 year rule with no annual RMDs starting in 2021 unless the plan requires a 5 year rule for death prior to RBD. Child will have to check with the plan whether the 5 year or 10 year rule applies, and if a rollover to an inherited IRA was not done, the plan provision will apply to the IRA if the rollover is done after 2021. Another issue is whether the plan will allow partial distributions so the child can spread out the taxable income. If the plan will not issue partials, the child might consider a direct rollover to an inherited IRA in order to spread out the taxes over the 5 or 10 year period allowed by the plan.