Bene IRA RMD Rules for minor grandchild with UTMA custodian

Submitted by Jeanette LoPiccolo on Mon, 2023-11-20 16:24

Our client died in 2023, age 90, and named his minor grandchild, age 11, as a 6% beneficiary. The exact wording of the beneficiary is Jane Smith custodian UTMA/MI for Joe Smith. Raymond James permitted us to establish a beneficiary IRA account for Joe Smith with Jane Smith as the custodian under a UTMA/MI agreement. (State of Michigan)

Since our client died after RBD and his beneficiary is a NEDB, my sense is that RMDs begin in 2024 using Joe’s life expectancy and continue until he reaches age 18. Then the 10 year rule begins at Joe’s age 18 in 2030. (2023+7= 2030) The final RMD must be withdrawn by 12/31/2040.

Is this correct? Thank you in advance!



Submitted by Alan - IRA critic on Mon, 2023-11-20 16:37

  • No. The 10 year rule begins immediately because Joe is not the child of the decedent. Annual RMDs are required in years 1-9 because client passed after RBD, but these RMDs will be very small due to Joe’s age. The inherited IRA must be drained by the end of 2033. Along the way, the kiddie tax might be triggered requiring the distributions in excess of 2500 to be taxed at the parent’s marginal rate.
  • Watch Out for the Kiddie Tax | Charles Schwab


Submitted by Jeanette LoPiccolo on Mon, 2023-11-20 17:00

 Thanks!



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