2020 inherited IRA with Estate as Bene

Submitted by James Short on Wed, 2022-08-24 13:26

90 year old IRA owner dies in 2020 with her Estate as Bene of her IRA. 2021 RMD was not taken. Does Executor need to take RMD now and request abatement of penalty or can Executor elect the 5 year rule and just have IRA emptied by end of 5th year?



Submitted by Alan - IRA critic on Wed, 2022-08-24 14:58

The 5 year rule never applies when the IRA owner passes after their RBD. There was no RMD due in 2020 because of the CARES Act waiver. The 2021 beneficiary RMD for the estate is based on the remaining LE of owner (divisor 4.5), and the 2022 beneficiary RMD under the new tables is 3.7, then 2.7 for 2023 etc. These divisors assume IRA owner would still have been 90 at the end of 2020. If the executor wants to close the estate, they can usually assign the inherited IRA out of the estate to the estate beneficiaries who can then manage their inherited IRAs for the few years left. This does not change the RMD divisors posted above. Of course, the executor can also close the estate by taking a total distribution of the inherited IRA and pass the taxable income to the estate beneficiaries on a K 1. If the balance is small, this will be easier. The executor DOES need to file a 5329 for the estate for 2021 to request a waiver of the penalty for being late with the 2021 RMD.

Submitted by James Short on Wed, 2022-08-24 21:12

Was there ever a requirement that inherited RMDs were to begin by 12/31 of the year following date of death and if they didn’t you had effectively elected out of LE rules?  Thanks for your time and expertise.

Submitted by Alan - IRA critic on Wed, 2022-08-24 21:30

  • In qualified plans, but not in IRAs because almost all IRA agreements specify life expectancy as the default RMD method. With an IRA, the beneficiary would have to elect the 5 year rule and that could only apply if elected and the owner passed prior to RBD.
  • Qualified plans on the other hand contained varying beneficiary RMD methods, some using the 5 year rule, some using LE, and others allowing an election to be made by the beneficiary by a certain deadline, usually 12/31 of the year following the year of death. And if the plan required the 5 year rule, if beneficiary did a direct rollover to an inherited IRA by that 12/31 deadline, they could escape the 5 year rule and use LE in the inherited IRA. 

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