Inheriting an inherited IRA from non-spouse through estate

Submitted by Amanda Minter on Tue, 2022-10-11 16:31

Client passed away this year with 2 investment accounts. One was a Traditional IRA in their own registration and the other was a traditional beneficiary IRA that they inherited several years ago (pre 2020) and were taking beneficiary RMDs. The client listed their “estate” as the beneficiary which leads to the client’s sister inheriting both accounts. Once the sister inherits both accounts we believe that the Traditional IRA will follow the 10yr rule for IRAs. Does the inherited beneficiary IRA also now follow the 10 yr rule or does it still follow the old required lifetime RMD payouts? We are unsure if the estate being named as the beneficiary (THEN to the client’s sister) will affect this at all?
Thank you!!!



Submitted by Alan - IRA critic on Tue, 2022-10-11 19:08

  • For client’s owned IRA left to the estate, the 5 year rule applies if client passed prior to RBD, and the remaining life expectancy of the client applies if client passed on or after RBD. The 10 year rule does not apply when there is no designated (individual ) beneficiary.
  • For the already inherited IRA left to the estate as successor beneficiary, the estate (or inherited IRA assigned to sister by the executor) is subject to the 10 year rule. According to the IRS proposed Secure Act Regs, if the original owner of this IRA passed prior to RBD, there are no required annual RMDs within the 10 year rule, but if they passed after RBD, there is. Therefore, sister would have to determine the age at which the original owner passed. Finally, this provision is another of the more complicated proposals that is being contested by various retirement organizations, so it is possible that it will not be included in the final Regs.

Submitted by Amanda Minter on Wed, 2022-10-12 20:32

Per your response above (thank you by the way!) we know the sister that inherited the client’s own Traditional IRA (client died in 2022 at age 68) is subject to 5 year rule.  Are we understanding correctly that even though the inherited IRA (that was also left to the estate as the successor beneficiary) which also goes to the sister is subject to the 10 year rule…so although the estate is also beneficiary this one is 10-year rule vs 5-year rule?  I am guessing maybe because it’s inherited IRA vs Trad IRA?  Our main question is we know original owner of inherited IRA was 82 and passed away prior to 2020 and the original beneficiary was taking beneficiary RMD’s at their passing in 2022.  What table does the sister use to calculate RMD’s and do she start her own 10 year period?  Very confusing!!!

Submitted by Alan - IRA critic on Wed, 2022-10-12 23:55

  • Yes, this is an odd situation, but when a beneficiary passes after 2019, a new 10 year rule applies unless the deceased beneficiary was already subject to the 5 or 10 year rule. It does not matter whether the successor beneficiary is an entity or an individual. In this case, the estate (including the estate beneficiaries) is subject to the 10 year rule, but according to the proposed IRS Secure Act Regs, because the original owner passed after RBD, the estate must continue the RMD schedule of the designated beneficiary in Years 1-9 of the 10 year period. To do that, determine what the correct divisor is for the designated beneficiary 2022 RMD, as reset to reflect the new 2022 RMD Tables, then continue to reduce that divisor by 1.0 each year. Sister must also distribute client’s 2022 beneficiary RMD if client did not complete it. Actually, these annual RMDs help to avoid a large distribution at the end of the 10 year period. 
  • You have now confirmed that the client passed prior to RBD and having left the owned IRA to the estate, the 5 year rule applies to the estate including the estate beneficiaries. 

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