10-Year Rule

Submitted by Michael Kordas on Fri, 2022-09-23 12:48

In regard to inherited IRAs and the 10-Year Rule – It is our understanding that if a non-eligible designated beneficiary (ex: a person who is more than 10 years younger than the deceased IRA owner) inherits an IRA from someone who was taking RMDs, the beneficiary must continue to take RMDs. If this is true, then do we calculate the RMD off of the age of the person who died or the beneficiary who inherited the IRA? Does the IRS give guidelines and/or calculator tools for the various circumstances?

If a non-eligible designated beneficiary inherits an IRA of someone who was NOT taking RMDs, does the beneficiary need to take RMDs? If so, is it calculated off of the decedent’s age or the beneficiary’s age?

What are the rules regarding the inheritor of an inherited IRA? Does the inheritor of the inherited IRA need to empty the IRA in one year, or does the inheritor of the inherited IRA have whatever time was remaining when the previous inheritor died? Does is matter if the inheritor is an eligible designated beneficiary?



Submitted by Alan - IRA critic on Fri, 2022-09-23 18:06

  • The proposed Regs would require that beneficiary to take annual beneficiary RMDs within the 10 year rule, but it’s not yet clear whether the proposal will be finalized as such because this provision is being contested by retirement plan advocacy groups. If these annual RMDs become official, the LE of the younger beneficiary would be used, the same as if the beneficiary had been an EDB.
  • If the deceased passed prior to RBD, this beneficiary will NOT be required to take annual RMDs per the IRS Secure Act proposed Regs, but may still wish to take some distributions to avoid a large lump sum distribution at the end of the10 year period. 
  • Successor beneficiaries present further complications. A successor beneficiary to a 10 year rule designated beneficiary must complete the existing 10 year rule. They do not get an additional 10 years. If the designated 10 year rule beneficiary dies after 9 years, the successor would have to drain the inherited IRA in the remaining final year. However, if the designated beneficiary is an EDB or was taking LE RMDs from an IRA inherited prior to 2020, the successor gets their own 10 year rule, but will have to take annual RMDs within the additional 10 years if the original owner passed post RBD. These annual RMDs would likely follow the EDBs RMD schedule.This proposed provision is also being contested and therefore might not be included in the final Regs. The proposed Regs are very light on HOW these successor beneficiary RMDs are to be calculated, and it is therefore expected that they will follow the old rules for successor beneficiaries completing the RMD schedule of the now deceased beneficiary. 

Submitted by Brent Steiner on Mon, 2022-10-03 15:05

Just looking at the calendar (October of 2022) and then at a list of clients that are in the 10 year rule and originally were told by us not to take distributions this year.  Should we pre-emptivly take distributions or wait to seee when the IRS will release their final ruling (knowing that we dont have alot of time yet this year) – any thoughts? 

Submitted by Alan - IRA critic on Mon, 2022-10-03 18:47

Either choice could backfire due to IRS’ lack of consistency with respect to Secure Act Regs and persistent delay in finalizing these Regs. Due to compliants filed regarding annual RMDs within the 10 year rule, they could easily drop that requirement. That said, many of these beneficiaries might prefer to take ratable annual distributions to avoid spiking their marginal rates at the end of the 10 years. Ratable distributions would generally be higher than the RMD, so in many cases the annual RMD (if that proposal is adopted) might be a decent compromise between taking no distributions and taking ratable distributions. 

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