Inherited IRA Distribution Rate
Participant dies after RBD. There are four beneficiaries named, one of which is a special needs trust. Am I correct in concluding that the three “regular beneficiaries” use the 10 year rule and, subject to IRS clarification may or may not need to take RMDs before the end of the 10 year window and the special needs trust beneficiary must take RMDs based upon the life expectancy of the original participant?
Permalink Submitted by Alan - IRA critic on Wed, 2022-05-11 23:04
The separate account rules still apply as before Secure. Therefore, the 3 designated beneficiaries should create their separate accounts no later than the end of the year following the year of death in order to be free of possible negative consequences resulting from the trust beneficiary. For example, if the trust is not qualified for look through for any reason, that results in a non individual beneficiary left in the IRA along with any other beneficiary who did not create the separate account by the deadline. That remaining beneficiary would then need to base annual RMDs on the remaining LE of the decedent, but also drain the inherited IRA no later than the year their own divisor (if RMDs had instead been based on their LE) dropped to 1.0). This is another overly complex proposed Reg that may not survive.
Secure Act explanations seem to assume that the trust is always the sole beneficiary and examples of that are numerous. To avoid unantipicated consequences it would be best to leave a separate IRA to a trust beneficiary, in other avoids avoid naming both trusts and individuals as the beneficiary of the same IRA.
If the trust was not affected by the other beneficiaries, the SNT RMD would be based on the longer of the LE of the trust beneficiary or of the decedent, assuming the trust is qualified for look through. If not qualified, then the LE of the decedent. but may also have to drain the account sooner as indicated above.