Successor to successor beneficiary

Submitted by Stevie Fitch on Fri, 2023-02-10 21:26

I have a unique situation that I don’t believe I have found addressed anywhere, though an article on this blog is close: https://irahelp.com/slottreport/successor-beneficiaries-%E2%80%93-%E2%80%9Cyou-have-got-be-kidding-me%E2%80%9D

We have a client who has inherited a beneficiary IRA from her father, who passed away in 2022. He inherited the beneficiary IRA from his wife (the client’s mother) when she passed away in 2020. However the wife/mother had inherited the IRA from her younger sister, who passed away in 2007. To slightly complicate things, the client also inherited half of the IRA from her mother directly when she passed away.

Based on pre-2020 rules, the client’s mother had been taking annual distributions from the IRA based on her own life expectancy. When she passed away in 2020, the client and her father inherited half of the IRA each. Due to the SECURE act, they would have had until the end of 2030 to distribute the balance, since the original beneficiary was an EDB of the original account owner.

Here is my first question: What if she wasn’t an EDB? If she were <10 years younger than her sister or otherwise not an EDB, my understanding is that her successor beneficiaries would have had to distribute the funds by 10 years after the death of the original owner, which would be 2017, years prior to them even inheriting the IRAs...Would this mean they would have had to distribute all in the same year she passed?

When the client’s father passed, my understanding is that this does not reset the 10-year timeline, so the client will now have 2 IRAs with the same original owner which nonetheless need to remain separate and must be distributed by 2030. Would this be correct?

Final question would be whether any annual RMDs are required, on either account. My thought is that none are, but would they in some other similar circumstance? The 10-year rule makes things extremely confusing. Thanks in advance for any help.



Submitted by Alan - IRA critic on Fri, 2023-02-10 22:42

  1. Q 1 – No. The Secure Act does not affect RMDs prior to 2020. The client’s mother is just a designated beneficiary but is treated as an EDB with respect to requirements after her death after 2019. Her successor beneficiaries are subject to the 10 year rule regardless of mother’s age in relation to her sister. However, the age of her younger sister at death (pre RBD or after) determines whether the successor beneficiaries must take annual RMDs in years 1-9 of the 10 year rule or not. They must take these annual RMDs only if the original owner passed on or after her RBD.
  2. You are correct that once the 10 year rule applies to an inherited IRA that IRA must be fully distributed by the end of that year regardless of how many more times the IRA is inherited. If annual RMDs are required in years 1-9 of the 10 year period, the RMD schedule for those RMDs must also be continued through the end of the first 9 years.  That said, due to confusion with the IRS Secure Act Regs, any annual RMDs that would have been required for 2021 and 2022 and were not taken will not be penalized.
  3. Therefore, the client now has 2 inherited IRAs, but both subject to the 10 year rule ending in 2030. Nonetheless, these inherited IRAs should be kept separately since they were inherited from different prior beneficiaries, and should be titled as such. The question that must be determined is whether the original owner (younger sister) passed prior to or after her RBD in 2007, as that determines whether annual RMDs are required in years 1-9 of the 10 year rule. If they are required due to younger sister passing post RBD, those annual RMDs would be calculated continuing the RMD schedule of mother and reducing the divisor by 1.0 each year, however starting in 2022 those divisors must be reset to those of the new 2022 RMD tables. 

Submitted by Stevie Fitch on Fri, 2023-02-10 23:15

Wow, thanks for the detailed response. A final clarification on if the original owner were RBD: Would the client’s RMDs would be based on the client’s mother’s age at death? Suppose she died in 2020 at 77, giving a life expectancy factor of 21.2 according to https://irahelp.com/printable/2020-uniform-lifetime-table. This would mean the divisor would be 21.2 in 2020, then 20.2 in 2021. The in 2022, would it reset to 13.3 per the new 2022 table here: https://irahelp.com/slottreport/new-2022-irs-life-expectancy-tables-available-here and this divisor would apply to both IRAs she now has. 

Submitted by Alan - IRA critic on Fri, 2023-02-10 23:39

The Uniform Table only applies to owners, never to beneficiaries. For the 2023 beneficiary RMD, the new single life table divisor for mother’s age in 2008 (year after she inherited) is where the calculation begins. If she would have been 65 at the end of 2008, the divisor is 22.9. Then 1.0 is subtracted from that divisor for each year since and that results in a 2023 divisor of 7.9. Since the IRS has waived the penalties for 2021 and 2022 RMD shortfalls, there is no point in knowing what those divisors would have been. 7.9 will apply for 2023 assuming the IRS finalizes the proposed Regs as issued with respect to RMDs within the 10 year rule. 6.9 will be the 2024 divisor etc. and this will result in about an equal distribution each year through 2030. That will spread the tax impact somewhat equally including the final year.

Add new comment

Log in or register to post comments