RMD for Inherited IRA: Based on decedent or beneficiary ?
Mom died in December 2023. Prior to her death, she did take her RMD for 2023. My brother and I were the equal Primary beneficiaries of her IRA. The financial institution did not get around to transferring my half to me or to my brother until February 2024. So as of February 2024 I am the owner of this Inherited IRA. I have determined I am (as is my brother) a “designated beneficiary”, so no special circumstances exist. I will be 73 years old in 2024.
When I asked the financial institution what my RMD would be for 2024, they stated because it was transferred to me in 2024 (not 2023), the RMD , for 2024 only, would still be based on Mom’s age (95) (as if she were still alive) and it would be based on the ending balance as of 12/31/2023. Further, the total RMD for 2024, for my brother and I combined, would have to be equal to or greater than Mom’s RMD for 2024.
I was thinking my 2024 RMD would be based on my age, Single Life Expectancy, 10 yr rule. I would be responsible for half of the ending balance as of 12/31/23 , that is what was eventually transferred to me in Feb 2024. Who is correct?
Thank you in advance for your comments/opinions !
Permalink Submitted by Alan - IRA critic on Thu, 2024-02-29 19:09
You are correct. Your inherited IRA divisor for 2024 will be 16.4 applied to your share of the 12/31/2023 inherited IRA balance. It’s immaterial that your inherited IRA was not created until 2024. Mother’s age in 2024 is also immaterial. It appears that the custodian thinks that your mother passed in 2024, not 2023, but all they have to do is look at the death cert you submitted to see what the DOD was.
Permalink Submitted by Gene Lawson on Thu, 2024-02-29 20:27
I didn’t care which way this went, I just wanted to take the proper RMD. I am dealing with a MAJOR brokerage with this issue; I presented my case to three of their IRA department reps, and then again in writing, always making sure to emphasize Mom died in 2023. It’s safe to assume that some of their millions of clients are presented with the exact situation I posed and they are giving out erroneous information, cautionary tale to be sure. You are providing a tremendous service, Thank You so much !
Permalink Submitted by Alan - IRA critic on Thu, 2024-02-29 22:33
You might expect this from a bank or CU, but it’s surprising that this is coming from a major brokerage, most of which have dedicated units to deal with client deaths. Forgot to confirm that in addition to annual beneficiary RMDs your inherited IRA must be drained by the end of 2033.
Permalink Submitted by Carol Redd on Fri, 2024-03-01 21:19
So, I’m following this thread because I have become all too well aware that Banks and CUs have little to no understanding of this VAST and Complicated topic. Combine that with NEW regulations that have just now become effective in 2024, and, yes, hundreds/thousands are being given misinformation by these wonderfully under-informed front-line personnel of even large Brokerages, TAX ADVICE that they have NO BUSINESS giving out! I have a client who passed 1/7/24 having turned 75 just 2 days earlier. She was consolidating her IRAs from Fidelity and Vanguard to Schwab. She had NOT yet named beneficiaries on the Schwab IRA. Does that mean that the Estate became the beneficary by default even though it was not NAMED the beneficiary? And, pays the tax on the amounts distributed each and every year? I’ve heard of using the Ghost rule to allow them to continue using the deceased’s life-expectancy for their RMDs. Does that mean that Schwab would split the IRA in two equal shares for each beneficiary, and they would report on their personal returns?Under the new rules, they must each include on their 2024 return, the 2024 RMD (based on the deceased life expectancy) that the deceased had not yet taken. But, how can they do that if the Estate inherited the IRA by default. If they fail to do that, they are personally responsible for the new 25% penalty on their personal returns.So many questions!
Permalink Submitted by Alan - IRA critic on Fri, 2024-03-01 21:35
When there is no named beneficiary when the owner passes, the IRA agreement should be carefully checked to see if it specifies a default beneficiary. That said, in most cases the estate will be the default beneficiary. Because the IRA owner here passed after their RBD, the estate or any estate beneficiaries who are assigned inherited IRAs out of the estate by the executor, will be subject to RMDs based on the remaining LE of the decedent.
Client having passed on 1/7, it is unlikely that she completed her year of death RMD before passing. Normally, the year of death RMD can be completed in any combination of the beneficiaries, but when individuals are named on some IRA accounts, and the estate is the beneficiary for another, the year of death RMD for the estate inherited IRA must be completed by the estate or the estate beneficiaries if they are assigned inherited IRAs out of the estate.
I heard recently that Schwab resists accepting assignments from executors to separate inherited IRAs, but do not know if that is true. The executor should attempt assignment and unless the estate needs some distributions to cover estate expenses, the estate should not take a distribution unless assignment is rejected. The new deadline for completing the year of death RMD is the tax due plus extensions, so there is over a year left to take care of this for the estate inherited IRA. If there is no will, then state intestate provisions determine the estate beneficiaries.
Permalink Submitted by Gene Lawson on Sat, 2024-03-02 01:47
Under bullet point #1: “Because the IRA owner here passed after their RBD, the estate or any estate beneficiaries who are assigned inherited IRAs out of the estate by the executor, will be subject to RMDs based on the remaining LE of the decedent. ” For the RMD, that’s just for the owner’s year of death right? Then the eventual beneficiaries begin the 10 Year Rule the next year?
Permalink Submitted by Alan - IRA critic on Sat, 2024-03-02 03:04
The year of death RMD is that which the decedent would have had to take using the Uniform Table.
Beneficiary RMDs begin in the following year and the 10 year rule does not apply to estates. The decedent’s single table divisor for the year of death is reduced by 1.0 for each year thereafter and this continues until the inherited IRA is drained. In the above situation posted by Casbar, the IRA owner was 75 in the year of death. The single life table divisor for 75 is 14.8 and beneficiary RMDs begin in the following year using a divisor of 13.8 (14.8 less 1.0), then 12.8 etc. The divisor drops below 1.0 in 14 years, which is when the inherited IRA is drained. In this situation the IRA lasts more than 10 years, but if the decedent had been over 80 it would be less than 10 years.