Inherited IRAs: Rules for Non-spousal and also Non-EDB beneficiaries

Submitted by JAMES SCHWEIKERT on Wed, 2023-10-11 18:12

The decedent passed in 2022 and had begun taking RMDs prior to passing.

As non-spousal and also non-EDB beneficiaries, we recognize that as the current rules stand, we must empty the account within ten years, generally speaking. The precise IRS wording is: [“Empty the entire account by the end of the 10th year following the year of the account owner’s (or eligible designated beneficiary’s) death”]

But siblings disagree on the second of two questions:

1. Sibling Jim interprets the above wording- “by the end of the 10th year following the year of the account owner’s death” to state that the account must be emptied by Dec 31, 2033, since the “year following the year (of account owner’s death)” is the current year- 2023, and the end of the 10th year would therefore be the last day of 2033. Is Jim correct?
2. Are we beneficiaries, or are we not, required to take distribution OF AT LEAST SOME AMOUNT from our respective Inheritance IRAs each and every year of the ten years? If yes, can it be in an amount of our choosing? i.e. If inclined to let it ride and grow, can we take out zero in a particular year? Or might it advisable to take out $1.00 per year, in case there comes into play an annual RMD requirement?

Thank you! – Jim, Arizona Advisor and Beny



Submitted by Alan - IRA critic on Wed, 2023-10-11 19:22

  1. Jim is incorrect. The inherited IRA must be drained by the end of 2032. 2023 is indeed year 1 and 2032 is year 10.
  2. Yes, because the decedent passed after their RBD, annual beneficiary RMDs are required in years 1-9 of the 10 year rule. Beneficiaries were also required to complete the 2022 year of death RMD if the decedent did not do so. This can be done in any combination between them.
  3. While annual beneficiary RMDs are required as stated above, because the IRS has not finalized their proposed Secure Act RMD Regs, they have waived the 2023 beneficiary RMDs in this situation (Notice 2023-54). Therefore, this year the beneficiaries do not have to take an RMD. It is expected that these beneficiary RMDs will have to begin in 2024 as the Regs are expected to become final.
  4. If separate inherited IRA accounts are established by each beneficiary by the end of 2023, they can each use their own age to calculate the annual beneficiary RMDs. These annual RMDs will help eliminate a large taxable distribution in year 10, one that could spike the marginal tax rate that year.

Submitted by JAMES SCHWEIKERT on Wed, 2023-10-11 23:01

Thank you kindly Alan. 

  1. Re: “The inherited IRA must be drained by the end of 2032… year 10.” I hear you, and understand. 2. I asked- Must we take SOME amt each year. You said- “Yes, because the decedent passed after (beginning) their RBD, annual beneficiary RMDs are required in years 1-9 of the 10 year rule. a) I don’t doubt you, I justcant find that language (annual beneficiary RMDs are required) in the code, and that is a key point for which I need a proof source for my sibs. b) I asked here: “If yes, can it be in an amount of our choosing?” You said: “If separate inherited IRA accounts are established by each beneficiary by the end of 2023, they can each use their own age to calculate the annual beneficiary RMDs”. (and yes, the beny’s have each opened their own inheritance IRAs), Ok, they “can” use their age to calculate…” But MUST they? My Q was: Can it be an amt of our choosing? Can we take $1.00? Does anyone know the answer to that? If you know of the source, I’d be so grateful if a replyer cites it, not for doubting you, but to satisfy/settle the matters with sibs, who are sadly already going to court on estate matters.

Submitted by Alan - IRA critic on Wed, 2023-10-11 23:33

  • The IRS has been very clear in the proposed Regs (copied text in next bullet point) that annual RMDs in years 1-9 will be required if the owner passed post RBD. This is their interpretation of the Secure Act legislation, but because these Regs are not yet final, they have waived 2021-2023 beneficiary RMDs for these 10 year rule beneficiaries. After the Regs are final, these provisions will be added to the tax code. Therefore, in 2023 there are no annual beneficiary RMDs required, but all indications are that they will be in 2024. 
  •  “Accordingly, if an employee dies after the required beginning date, distributions to the employee’s beneficiary for calendar years after the calendar year in which the employee died must satisfy section 401(a)(9)(B)(i) as well as section 401(a)(9)(B)(ii). In order to satisfy both of these requirements, these proposed regulations provide for the same calculation of the annual required minimum distribution that was adopted in the existing regulations but with an additional requirement that a full distribution of the employee’s entire interest in the plan be made upon the occurrence of certain designated events (discussed in section I.E.3.c. of this Explanation of Provisions”
  • Therefore, starting next year the RMD is expected to be mandatory. Of course, more than the RMD can be withdrawn, and even though there is a waiver in 2023, not taking a distribution in 2023 and even limiting distributions to only the RMD amount in 2024-2031 will result in a larger taxable distribution in 2032. Accordingly, even in cases where the IRA owner passes prior to RBD and no annual RMDs are required, many beneficiaries think it is wise to draw down the inherited IRA by roughly an equal amount each year to level out the tax impact. If a beneficiary is working and not maxing out their own plan, they can use these beneficiary distributions to subsidize increasing contributions to their own plan, and this will cancel out the tax impact of the inherited IRA distributions.

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