Beneficiary IRA and RMD rules

Submitted by Ram Iyer on Tue, 2022-11-22 00:01

Hello:

My father-in-law passed away in late 2021. My wife was the beneficiary to his IRA. The company took out the 2021 RMD before sending funds to my wife in 2022. So, what would be the RMD for the next 10 years if it is a 10-year withdrawal method. It was not a lot of money. Just $3600. Is it even worth extending it to 10 years, but that is her decision.



Submitted by Alan - IRA critic on Tue, 2022-11-22 00:14

Since the year of death RMD was distributed, he most likely passed after his RBD. If so, annual beneficiary RMDs for your wife starting in 2022 and lasting through year 9 (2030) would be based on the single life table using your wife’s age attained this year. The 2022 divisor would then be reduced by 1.0 for each year thereafter. The remaining balance will have to be taken out by the end of 2031. At anytime she can take out more than the small RMD or empty the account. 



Submitted by Ram Iyer on Wed, 2022-11-23 13:45

My wife was not designated as beneficiary. After father-in-law died, it was distributed to three children. So, it was inherited, I would say. She inherited a portion of this IRA. Does this change anything?



Submitted by Ram Iyer on Wed, 2022-11-23 14:06

I see this in the US News and World Report. “The timing of the account owner’s passing plays a role when determining the next steps. “If an individual died in 2020 or later, then you don’t have to take RMDs, but you need to withdraw the entire amount of the IRA within 10 years,” says Jonathan Shenkman, a financial advisor and president of Shenkman Wealth Management in Woodbury, New York.” Now, I am confused. Does she have an RMD every year or not? Or, is it merely the fact that she has to empty in 10 years.



Submitted by Alan - IRA critic on Wed, 2022-11-23 14:28

Was your wife named as one of the beneficiaries, or did his estate inherit his IRA, and your wife was a beneficiary in his will?



Submitted by Ram Iyer on Wed, 2022-11-23 15:50

It was determined as part of his estate and split between his children. He himself had not named anyone as a beneficiary in the IRA.



Submitted by Alan - IRA critic on Thu, 2022-11-24 01:44

Since his estate was the beneficiary, the 10 year rule does not apply to her inherited IRA. Assuming that he passed on or after his required beginning date, annual beneficiary RMDs would be based on father in laws remaining LE using the age he would have been on 12/31/2021. For more specifics, please provide his DOB and DOD.



Submitted by Ram Iyer on Thu, 2022-11-24 13:38

DOB –  August 30, 1923   DOD- October 11, 2021



Submitted by Alan - IRA critic on Thu, 2022-11-24 16:16

Due to his very long life span, his remaining LE for wife’s RMDs is very low. Her 2022 RMD divisor will be 2.2. If the will indicated your wife’s share to be 1/3, then her 2022 RMD will be her 1/3 share of the inherited IRA balance on 12/31/2021 divided by 2.2. Her 2023 divisor will be 1.2, and since the value is so small, she might want to either take out the entire balance this year, or just take her RMD this year and the rest of the balance in 2023. This post also applies if he did not have a will, but his children inherited under state law.



Submitted by Ram Iyer on Fri, 2022-12-02 21:24

Thanks



Submitted by Ram Iyer on Fri, 2022-12-02 21:31

Hi: I am going to follow what you said but here is another opinion from a reputed source.  Basically, they are saying my wife does not have to take an RMD. If the original IRA owner passed in 2021, then the beneficiary is on the new Secure Act rules.  Since my wife is child to the IRA owner, she can elect to take the 10-year rule.  The way the rule is currently in place, there is no year-to-year RMD required.  My wife may elect to take a distribution each year, if so, this is called a declining balance.  Year one she would receive 1/10 of the value of the Bene IRA, and then 1/9 , then 1/8 and so forth until year 10 when all remaining assets in the Bene IRA would be disbursed.  Also, my wife may redeem the full balance of the Bene IRA at any time during the 10-year window.  Also, this rule may be changed in the near future. Congress is proposing additional changes to the 10-year rule and a year-to-year RMD may become a requirement.  How that will affect current Bene IRA owners since 2020 will have to be determined if the changes happen. What you (that is me) are sharing is similar to the Life Expectancy Rule.  Under this rule there would be a RMD taken each year using the single life table for my wife.  But, because the IRA owner passed in 2021, this rule is not option for my wife



Submitted by Alan - IRA critic on Fri, 2022-12-02 22:20

  • She cannot elect the 10 year rule because his estate inherited the IRA, not your wife directly. 
  • Now, IF she had inherited directly by being specifically named as beneficiary on his IRA, and IF the IRS approves the Secure Act Regs as proposed in Feb, 2022, she would be subject to the 10 year rule and would have to take annual RMDs in years 1-9. The IRS has made these annual RMDs optional for 2021 and 2022, but they would likely have to begin 2023. 
  • So your source likely did not understand that her father left this IRA to his estate, and your wife is therefore NOT a designated beneficiary of the IRA. She is just a beneficiary of his estate. The divisor of 2.2 means that her 2022 RMD would be almost half the balance of the IRA depending on what investment losses have occurred this year. Using this divisor would result in roughly half the current value being distributed this year and most of the rest in 2023. 


Submitted by Ram Iyer on Thu, 2022-12-22 18:07

It was finally revealed that my wife was indeed a beneficiary in the IRA. So, now, is she eligible for the 10 year RMD  withdrawal and does she have to take any RMD every year or just exhaust it in 10 years without  taking out any RMD? Basically, I want to know if she has to take out a distribution in 2022. Thanks



Submitted by Alan - IRA critic on Thu, 2022-12-22 18:18

OK, she is therefore under the 10 year rule, but because FIL passed after RBD, she must also take out annual beneficiary RMDs. That said, the IRS has waived these annual RMDs for 2021 and 2022 due to the delay of the final Secure Act Regs. Therefore, no annual RMD is required for 2022 unless she wants to spread the income over more years. I expect that the final Regs will require her to start annual RMDs in 2023 based on her age in 2022. She would determine the new 2022 single life table divisor, then reduce it by 1.0 for her 2023 RMD.



Submitted by Ram Iyer on Thu, 2022-12-22 18:41

Thanks



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