RMD's for Sucessor Beneficiary of an Inherited IRA

Submitted by Robert Davis on Tue, 2023-05-02 16:27

Son passes away in November 2021 at the age of 71 before RMD required date and leaves IRA to his mother who was 96 years old. The IRA was at another firm and there was no RMD distribution for 2022 and the mother is a “designated beneficiary” and can elect RMD’s based on her life expectancy. Mother then passes away on 1-31-23 and had her daughter who is 67 as 100% primary beneficiary. My understanding is the successor beneficiary who is a “designated beneficiary” of the original IRA owner cannot take life expectancy and the 10 year rule now exists?. Does the daughter need to take an RMD for 2023 based on what her mother should have taken out? Since the mother did not start the life expectancy RMD’s in 2022 did she default to the 10 year rule and if so then I would think the daughter (successor) would not have to take an RMD for 2023 but and would not be subject to the 10 year rule but based on who’s death? The original IRA owner or the mother who was 97 at the time of her passing? Would the mother be exempt from RMD tax penalties for 2022 under the excise tax relief program? I don’t think she would because that relief is contingent on the original IRA owner that had reached RMD requirement age.

Quite the unique case and I would appreciate any guidance.

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Permalink Submitted by Alan - IRA critic on Tue, 2023-05-02 19:04

Because almost all IRA agreements default to LE RMDs rather than a 5 or 10 year rule, we can probably assume that mother did as well and that she did not make an election out of EDB treatment by 12/31/2022, leaving her rather large 2022 LE RMD unfulfilled. While the inherited IRA might have included specific provisions and deadlines for elections that should be determined, most likely she fell under EDB LE RMD treatment and not the 10 year rule. Moreover, her estate is not capable of filing Form 5329 requesting penalty relief because the estate cannot make up the 2022 RMD since it does not control the IRA. And her daughter is only responsible for the 2023 year of death RMD, not the RMDs for prior years. You are correct that no RMD waivers apply to mother because she will be treated as an EDB. The IRS rarely proceeds against estates to collect excess accumulation penalties. Noted IRA expert Natalie Choate comments on this dilemma for mother’s executors on pages 14 and 15 linked at the end of this post.
Daughter will be subject to a new 10 year rule ending in 2033, and will not be subject to annual beneficiary RMDs in years 1-9 because the IRA owner passed prior to RBD. However, daughter will be responsible for mother’s year of death 2023 beneficiary RMD.
Natalie Choate – Death&Taxes2020-2.pdf (redwoodempireepc.org)