New Secure Act Regulations – Grandchildren EDB?

Submitted by John Going on Thu, 2022-05-26 20:44

Is a grandchild (age 11) considered an EDB minor child or does that designation only apply to the child (son/daughter) of the deceased (not subsequent generations)?



Submitted by Alan - IRA critic on Thu, 2022-05-26 21:23

Only the minor child of the deceased plan owner can be an EDB based on age. However, a grandchild or any other beneficiary could still be disabled and attain EDB status through disability or chronic illness as of DOD.

Submitted by David Mertz on Thu, 2022-05-26 21:25

That designation only applies to minor children of the decedent, not to grandchildren of the decedent.  For a grandchild to be an EDB the grandchild would have to be disabled or chronically ill.

Submitted by John Going on Thu, 2022-05-26 21:37

Since the 11-year-old grandchild does not qualify as an EDB, and since the RBD did not take place before the death of the grandmother, my understanding of the pending regulations is that the grandchild has 10 years to remove the IRA funds, but does not need to take an RMD each year unless they want.  Instead, they could take everything by 12/31 of the 10th year.  Is my understanding correct?

Submitted by Alan - IRA critic on Thu, 2022-05-26 21:43

Yes, that is correct, although if the balance is large it might spread out the tax liability to take distributions each year to avoid a large taxable distribution at age 21. Implications of the kiddie tax should be investigated in determining the distribution pattern.

Submitted by John Going on Thu, 2022-05-26 21:49

Appreciate the quick Replies Alan!

Submitted by John Going on Fri, 2022-06-03 16:04

New Details – I had my client pull the 2019 tax return and RMDs had been taken. None taken in 2020 due to CARES Act.  Grandchildren inherited in September 2020, but it wasn’t until spring of 2021 that the parents completed the process of getting guardianship through the courts so they could manage the IRAs for the grandchildren.  No RMDs have been taken.   Since the children inherited in 2020 (regardless of court issues), I believe the first year’s (of ten years) RMD should have been removed by 12/31/21.  I can request abatement on Form 5329 and this seems like it will qualify as reasonable cause. Given the facts, is my understanding correct?

Submitted by Alan - IRA critic on Fri, 2022-06-03 16:27

  • If grandmother passed on or after RBD, pending Secure Act regs will require annual RMDs within the 10 year rule. Given this unexpected proposal and the timing of it, any penalty would certainly be waived.
  • That said, earlier you said that GM passed prior to RBD, and if that is correct, there are no annual RMDs within the 10 year rule proposed, and no waiver situation. But the Secure Act also changed the RBD. If GM was born prior to 7/1/1949 her RBD follows the year she reaches 70.5. If she was born 7/1 or later, her RBD follows the year she turns 72. Given these factors, did she pass prior to RBD, or after? 

Submitted by John Going on Fri, 2022-06-03 16:55

This is a new client for me, and I don’t have the grandmother’s exact DOB; however, the daughter just told me she was 78 when she died, so that would put her past the RBD in your 2nd bullet point.I agree that the penalty will certainly be waived – My question – Am I right that the grandchildren’s 1st year of RMDs should have been 2021 (irrespective of the court issues), 2022 is the second, and so on through 2030 (the tenth year) when everything needs to be removed?  Also agree with your earlier comment that I need to discuss potential kiddie tax issues.  

Submitted by Alan - IRA critic on Fri, 2022-06-03 17:16

There is no solid answer at this point, since passing after RBD produces the contested scenario in the Secure Act proposed Regs that would require annual beneficiary RMDs within the 10 year rule. This requirement is being contested by multiple large organizations such as the Spark Institute and the ABA, so at this point no one knows whether this requirement will be adopted or not. Also unknown is potential RMD waivers for 2021 and 2022 if it is adopted, since the Regs may not even be finalized before year end, and 2021 is already long gone. Therefore, unless distributions are desired regardless of whether they are required or not, I would not not calculate RMDs and withdraw that amount based just on the proposal. Finally, due to their age, if annual RMDs are eventually required, due to the children’s ages, they will be far less than withdrawals needed to amortize the account over 10 years. 

Submitted by John Going on Fri, 2022-06-03 17:49

Appreciate your detailed and quick responses.  

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