Initial RMD
Hello –
2 different clients:
1. Client A’s DOB is 09/15/50. Turning 72 this Sept. Just want to confirm that, whether the initial RMD is taken in 2022, or by April 1, 2023, we would nevertheless use age 72 on the Uniform Lifetime Table (new for 2022), equal to 27.4.
Is the above correct?
2. Client’s B’s DOB is 03/27/50. So, turned 72 last month. Is there a difference versus Client A because Client B’s birthday was in the 1st 1/2 of the year? If so, does this mean Client B MUST take his initial RMD in 2022 (as opposed to being able to defer the initial year RMD until 2023).
3. Separately, Client B inherited 2 retirement accts. at the very end of last year: An Inherited Qualified Plan (PSP) and an Inherited Trad. IRA. Both were consolidated and transferred into a new Inherited Trad. IRA. at a different custodian (no desire to have partially converted the PSP). Client is an EDB (was a cousin and < 10 years younger than decedent). So, Client will commence RMD's by the end of 2022, based on the Single Life Table (new for 2022), per ability to stretch.
When Client B passes away, and leaves Inherited Trad. IRA to spouse, since the Spouse is a successor beneficiary (assume Spouse is older than RBD):
A. If Spouse rolls over to her own Acct., confirming she may take RMDs per her life expectancy (as an EDB).
B. If Spouse stays as Inherited IRA Beneficiary, confirming she MUST take RMDs in years 1- 9, fully distributed by 10 (since she remained a beneficiary, and her Spouse would have already met his RBD).
And, if Spouse predeceases and funds go to children (or Spouse lives longer and then passes, leaving to children), who are adults, either way (if Spouse was owner of Inh. Trad. IRA or remained Beneficiary), adult children must take RMDs during years 1 – 9, w/ final distribution year 10.
Please advise. Thank you!
Jason
Permalink Submitted by Alan - IRA critic on Wed, 2022-04-20 20:18
Yes, 27.4 is the correct divisor for the 2022 RMD using the 12/31/2021 balance whether he takes the distribution in 2022 or 2023.
There is no difference between client B and client A. Same age and divisor and deadline dates. With the Secure Act the 1/2 year convention is history.
Just confirming that client was the designated beneficiary (EDB), and did not inherit already inherited accounts, which would make client a successor beneficiary and make the combined inherited IRA problematic. A) When non spouse EDB client B passes, B’s spouse is NOT able to do the spousal rollover and must be treated as a successor beneficiary. B) B’s spouse will subject to the 10 year rule. But a perverse provision in the new proposed Regs would also require B’s spouse to continue B’s beneficiary RMD schedule IF B’s cousin passed on or after their RBD. If B passes 15 years from now, B’s surviving spouse may have a problem determining if B’s cousin passed after RBD or not. And this provision may not survive the final Regs since it will get major blowback, so it will be interesting to see if it survives the complaints. Note that if B’s cousin passed prior to RBD, then B’s spouse will NOT have annual RMDs, just the 10 year rule.
As to your final paragraph, since B’s spouse will be subject to the 10 year rule (Cannot become the owner), any successor beneficiary of spouse will be subject to that same 10 year period with no extension. The inherited IRA would have to be drained no later than 10 years after B’s death, and if B’s spouse had to extend B’s annual RMDs as well, so would additional successor beneficiaries have to continue that schedule.
Permalink Submitted by Jason Hochstadt on Thu, 2022-04-21 12:10
Hi Alan – Thank you! For #3, correct, Client B was the EDB (it was his cousin’s IRA who passed), NOT a successor beneficiary. And, the cousin (the IRA owner) had met her RBD – which Client B’s spouse knows (or should know). So, Client B’s spouse would have to continue Client B’s Beneficiary RMD schedule per the proposed Regs. For #s3 & 4: Depending on when Client B passes, presumably it’s possible the Inh. IRA will need to be fully distributed prior to the 10-years OR will have already been distributed (e.g. if Client B, who is 72, passes at of after age 90, given the rule of subtracting 1 from the initial RMD for a non-spouse beneficiary, the entire Inh. IRA will have been distributed). And, if Client B were to pass at, say, age 85, irrespective of Client B’s spouse’s age, confirming that Client B’s spouse would commence RMDs using 4.2 (17.2 from Client B’s initial RMD – 1 x 13 years) as the divisor/life expectancy. Jason
Permalink Submitted by Alan - IRA critic on Thu, 2022-04-21 13:56
Yes, that’s correct according to the proposed Regs. But some of these provisions could be modified or dropped entirely. And of course, any of these beneficiaries must complete the year of death RMD of prior owner if that was not completed. Among the proposals is an extension of the deadline to complete the year of death RMD as year end is often difficult to meet for late year deaths.