Unusual Inherited IRA situation

Submitted by Bruce Frisbie on Tue, 2022-10-11 00:28

Hello,

Please provide guidance on the following two scenarios. I suspect Scenario #1 is fairly unusual. Scenario #2 is focused on the final ruling regarding the SECURE Act and RMDs from inherited Traditional IRAs.

Scenario #1

Background:
Darrell, the owner of an inherited IRA, passed away in 2019. Darrell was taking RMDs from the inherited IRA prior to his death.

Darrell’s estate was named as the beneficiary of his inherited IRA. Darrell’s nieces and nephews (Scott and his 4 siblings) were named in Darrell’s will as beneficiaries of Darrell’s estate. Accordingly, Darrell’s inherited IRA was split into 5 separate inherited IRAs (one each for Scott and his 4 siblings).

Scott and his 4 siblings have each taken RMDs from the IRAs they inherited from Darrell based on Darrell’s life expectancy.

Scott passed away in 2022. Scott’s 4 siblings were named as beneficiaries of the IRA Scott inherited from Darrell, meaning Scott’s IRA inherited from Darrell must now be split into 4 separate inherited IRAs (one each for Scott’s 4 siblings). These siblings are the same individuals who already have an IRA inherited from Darrell.

Questions:
1.1 How should the 4 new inherited IRAs be titled: a) as inherited from Darrell; or b) as inherited from Scott?

1.2 If Scott hadn’t taken his 2022 RMD from his IRA inherited from Darrell, must his siblings take 2022 RMDs from the new inherited IRAs by 12/31/22?

1.3 Can the 4 new inherited IRAs be rolled over into each sibling’s existing IRA inherited from Darrell and the owner continue to take RMDs based on Darrell’s life expectancy?

Scenario #2

Background:
Same parties as in Scenario #1.

Scott also had his own Traditional IRA account when he died in 2022 at age 65. Scott’s 4 siblings were named as beneficiaries of his Traditional IRA, meaning Scott’s Traditional IRA must now be split into 4 separate inherited IRAs (one for each sibling). These new inherited IRAs will be titled as inherited from Scott.

Under the SECURE Act, we understand most inherited Traditional and Roth IRAs must be fully disbursed by 12/31/XX of the 10th year following the death of the deceased IRA owner (in this case, by 12/31/32).

Questions:
2.1 Since Scott and his siblings are all under the starting age for RMDs, must RMDs be taken from the IRAs inherited from Scott? Or, if the owner wishes, can the balance be left in the inherited IRA until it is fully disbursed in 2032?

I will appreciate your guidance.

Thank you,
Bruce F.



Submitted by Alan - IRA critic on Tue, 2022-10-11 03:48

  • Scenario 1:  Q 1: The titles should indicate the new beneficiary’s name as beneficiary of Scott.  
  • Q 2:  Yes, in any combination of the 4 as long as Scott’s total RMD is completed.
  • Q 3: No, because the RMDs differ. Since Scott passed post Secure, the 10 year rule will apply to his beneficiaries, but the annual LE RMDs under Darrell’s schedule must also continue. The 10 year rule does not apply to the siblings other inherited IRAs from Darrell.
  • Scenario 2, Q 1:  Assuming no EDBs, there are no annual RMDs required for Scott’s beneficiaries because he passed prior to RBD. These inherited IRAs can be left untouched until 2032, however to avoid a large distribution at the end, the beneficiaries may benefit from taking ratable distributions each year to level out the taxable income.


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