The Eligible Designated Beneficiaries (group) is lightly addressed in IRS publication 590-B (Rev 2022). In view of last weeks revelation that 2020 Inherited IRA’s under the 10 year plan have excused RMD’s in 2021, 2022, & now 2023 I am now to advise a tax client (agree or disagree) to a path that an investment custodian has chosen in this tax matter. With so many twists and turns I am not convinced the investment custodian has cleared all the hurdles in this case.

Facts: Married couple in tax year 2020. Wife passed away mid year at age 81, fully taking RMD’s from when they began for her at age 70 and a half,,,,,, but not yet in 2020. (2020 was not needed, as the waived year when IRS removed the RMD’s was 2020.)
Husband in this case was in his 90’s ……..about 13 years older than his wife.

Husband was the sole beneficiary named in his late wife’s IRA.
The custodian created an INHERITED IRA FBO the surviving spouse name, moving the entire account to this account.
About 200,000.

When I look to the IRS pub 509-B, and try to follow the process flow I believe it as follows:

Inheriting an IRA from your spouse there are 3 options

1) Treat it as your own (doing a spouse to spouse rollover)
2) Rolling the deceased spouse into surviving spouse’s other qualified plans (employer plans)
3) Survivor treats themselves as a beneficiary, rather than becoming their own IRA.

In the facts I have the custodian acted number 3, set as a beneficiary – not as anything related to “spouse to spouse”.

Further in Pub 590-B … when it comes to Required Minimum Distributions it discusses what type of beneficiary you are and if the deceased had reached the RMD age.

a) Surviving Spouse
b) Eligible Designated Beneficiary
c) An individual other than an EDB (item b)
d) Beneficiary is not an individual, but instead a trust

In this case, in qualifying as the Eligible Designated Beneficiary, I assume the custodian (taking the inherited stance (not spouse to spouse) sees that either the spouse qualification or other individual not 10 years younger qualifies the account to be classified in the 10 year rule.

Zero has been distributed in year 2021 & 2022…. and that seemed apparently fine with what was the automatic waivers in 2021 & 2022 missed RMD’s. As of last week, now tax year 2023 is to be on the automatic wavier as well.

So this seems to be all in line with not being in trouble with RMD’s as THIS inherited IRA is running under the 10 year rule.

The down side that I see is that from the age of the surviving spouse (age 93 in tax year 2021 (year after original owners death) the single life factor to use in RMD’s was set at 4.6 ) So as they missed on 2021 & 2022 distributions, they are now down to tax year 2023 distribution using a factor of 2.6 (4.6 in 2021, less 1 year for 2022 and less 1 more year for 2023) .
Approximately high $76,000 distribution in 2023, and similar to that in 2024….. it will have about $40,000 left in year 2025 and need that entire amount distributed as just .6 life expectancy would be left.

The positive side is not having the 2021 and 2022 distributions, if this whole case is allowed to be viewed as inherited and into the 10 year rule.