If you have inherited a small IRA from a parent and transferred the assets to an inherited IRA can you take a lump sum in year 10 or do you need to take RMD’s each year? If you don’t need the cash can you just let it grow and take a lump sum in one year before 10 years in the future?
Assume the parent was already taking RMD’s and the child is more than 10-years younger. For example, the parent is 75 and the designated beneficiary is a daughter age 50. Is the daughter required to take distributions for 10 years based on the parent’s age (as if they were still living) until the 10th year and then take a full distribution of the remaining balance of the IRA?
Proposed IRS Regs would require the daughter to take annual RMDs in years 1-9 and drain the inherited IRA in year 10. However, the annual RMDs are calculated using daughter’s age, not the parent’s age. Note that these annual RMDs will reduce the amount of the year 10 total distribution, but the year 10 distribution will still be far larger than the annual RMDs.
Assuming the inherited IRA is from a parent after RBD, and more than 10 years older. Also understand it’s the child’s age not the parents. Prior to the 10 year rule the divisor was greater for inherited IRAs than traditional and was pretty much emptied out by age 85 vs about 105 for traditional. Where do we find the divisor for single life expectancy for an inherited IRA now under the 10 year rule?
The IRS Single life table (Table I in Pub 590 B) contains these divisors. The divisor is the same whether the beneficiary is an EDB or a 10 year rule beneficiary of a decedent that passed on or after RBD. The divisor for the first non spouse beneficiary RMD year is then reduced by 1.0 for each year thereafter.
The language in the Pub 590 B is certainly confusing and at times seems contradictory-The 10-year rule requires the IRA beneficiaries who are not taking life expectancy payments to withdraw the entire balance of the IRA by December 31 of the year containing the 10th anniversary of the owner’s death. For example, if the owner died in 2022, the beneficiary would have to fully distribute the IRA by December 31, 2032. The beneficiary is allowed, but not required, to take distributions prior to that date.Then in another paragraph it states-Payment under the 10-year rule.If the IRA owner dies before the required beginning date and the 10-year rule applies, no distribution is required for any year before the 10th year. The first would indicate that a designated beneficiary would not have to take distributions before the 10 year mark, but then the 2nd indicates that it only applies to those that inherit IRAs that were before the deceased RBD. But doesn’t explicitly state that those who inherit after the RBD do have to take the distribution.Am I reading this correctly?
The Publication is poorly organized and worded for this subject. Apparently, the reference to “allowed but not required” refers back to the first sentence of that paragraph which addresses those who are not taking LE payments. But if the owner passed on or after RBD, the beneficiary will be required to take LE RMDs in years 1-9. I think a chart arranged by when the owner passed would eliminate some of the confusion caused by the multiple paragraphs attempting to explain beneficiary RMD requirements and options.
Permalink Submitted by Alan - IRA critic on Mon, 2022-11-14 16:29
Depends on age of parent and year they passed. Please provide DOB and DOD.