Custodial Beneficiary IRAs

Submitted by Amanda Minter on Fri, 2023-03-31 13:27

As I understand the current law, we establish the “custodial beneficiary IRA’s” for the benefit of each child with a listed custodian. There are no RMD’s and the 10 year clock does not start until the minor turns 18.

Can the Custodian take distributions from that account whenever they want while the minor is under age?
Do RMD’s have to start in the YEAR the minor turns 18?
The 10 year clock starts in that year of attaining 18 or the year following age 18?
Kiddie tax would apply on that income as long as the minor is claimed as dependent on parent tax return?
What does the parent have to do to NOT claim the minor on their return so that Kiddie Tax doesn’t apply?



Submitted by Alan - IRA critic on Fri, 2023-03-31 14:27

  • While the age of majority is 18 in most states, the Secure Act defines the minor child of the decedent to be age 21, which accomodates the states that have an age of majority higher than 189. As such the 10 year rule does not start until the year after the child reaches 21. Distributions for the benefit of the minor can be taken anytime, but annual beneficiary RMDs also apply up to and including the year the child reaches 21. There are no beneficiary RMDs required after that year, but the inherited IRA must be drained in the 10 year after the child reaches 21.
  • The child’s marginal tax rate applies to unearned income between $1150 and $2300, and the kiddie tax for unearned income above 2300.  GIven the extremely low RMD% for minors, the IRA would have to be over 100k for it’s beneficiary RMDs to exceed 2300. There is no way for the surviving parent to escape the kiddie tax if the threshold is exceeded. The kiddie tax will last longer if the child attends college. 

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