Hypothetical RMD Rule
Can I get clarification of the Hypothetical RMD Rule?
We have several younger clients whose spouses passed away (all are in their 40’s). Normally, we would have the spouse keep these funds in an inherited IRA until the spouse turns 59 1/2 and then move these funds into their own IRA.
Is this something we can no longer do? If not, what options would these spouses have?
When did this rule go into effect?
Permalink Submitted by Alan - IRA critic on Tue, 2025-03-04 16:23
You can ignore this rule UNLESS the surviving spouse has opted out of EDB treatment and into the 10 year rule, which would be unusual and now would be costly.
Otherwise, all the prior options still exist plus a new option under Secure 2.0 that allows the surviving spouse to elect to be treated as the participant for RMD purposes, although the IRA is still inherited. All the same benefits apply, but in addition the surviving spouse can use the Uniform Table.
A sole surviving spouse is still not subject to beneficiary RMDs until deceased spouse would have reached RMD age. But once the deceased spouse would have reached RMD age, the younger surviving spouse would have to start beneficiary RMDs, although the new provision will allow the spouse to elect to be treated as the participant for RMD purposes. This will allow them to use the Uniform Table for their age for beneficiary RMDs, generating a much lower RMD than the single life table. Therefore, the IRS has published a new Uniform Table with divisors all the way down to age 10. Since the IRA is still inherited, there is no 10% penalty for distributions prior to age 59.5.
Upon reaching 59.5 or anytime for that matter, the surviving spouse can still elect to assume full ownership as before where the IRA is transferred to a new owned IRA titled as the owner (deceased spouse name no longer appears in the title).
Therefore, best not to recommend that a surviving spouse opts out of EDB treatment and into the 10 year rule and hypothetical RMDs will never be a concern.