Succesor IRA BD and RMD or 10 year rule

Submitted by Robert Davis on Wed, 2023-05-17 19:55

Son passes away in Nov. 2021 at age 71 (before RMD age) and leaves entire IRA to his mother who is 95. Since she is an “eligible designated beneficiary” she has the choice to take distributions over the longer of their own life expectancy and the decedents remaining life expectancy or Follow the 10-year rule. Mother registers the IRABD in her name in 2022 and never took a distribution for the 2022 year which would have been required under the life expectancy rule. Jan. 31st she passes away and leaves her daughter 100% of the proceeds who is 67. The account was held at UBS and registered into the daughter’s name. The daughter now must take exhaust the account by end of the 10th year of the original owner. My question is since the mother did not take a distribution for 2022 would she default to the 10 year rule? I’ve looked through the custodial agreement for UBS and it states that the eligible designated beneficiary has the option for the life expectancy or 10 year rule if so elected. There is nothing in the agreement that states what the default option is if the beneficiary does not elect the life expectancy. If the default is life expectancy than the daughter would be required to take the mother’s(who is now 96) RMD for 2023 which is $81,000 but if the mother defaulted to the 10 year rule then the daughter would not have to take anything. Is the default option determined by UBS or is it assumed since she did not take a distribution for 2022 that she defaulted to the 10 year rule?



Submitted by Alan - IRA critic on Wed, 2023-05-17 20:47

  • The Secure Act proposed Regs appear to continue the prior regime of IRA agreements almost universally defaulting to the LE option if it is allowable. That means the beneficiary would have to specifically opt into the 10 year rule by the end of the year after the year of owner’s death just as they would have had to opt into the 5 year rule in the past. Therefore, as you indicated the daughter inherited from an EDB and falls under the 10 year rule and must take mother’s year of death 2023 RMD based on age 96. Mother’s missed 2022 RMD does not become an obligation of the daughter, and the IRS has no appetite to penalize estates of decedents. Finally, daughter does not have to continue the LE RMDs of mother because the son passed prior to RBD. Of course, the successor beneficiary inherited IRA must be drained by the end of 2033.
  • Note that if mother HAD opted into the 10 year rule, the inherited IRA would have to be drained in 2031 instead of 2033, therefore the default LE method for mother results in 2 extra years for daughter to work with to manage tax efficient distributions. 

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