IRA Beneficiary Question
Hello,
I have a pretty interesting one here, a client passed away this year and was 74 and the 2025 RMD has been satisfied. One of the beneficiaries is his spouse who is 34. The spouse beneficiary is asking what type of IRA to open that will give them the lowest RMD amount. I know they could open a IRA BDA and take RMD’s annually based on their life expectancy each year but couldn’t they just open a TIRA and treat the assets as their own and delay RMD’s until they turn 73 or the RMD age at that time?
This is assuming they don’t need any of the assets for death expenses. Thank you.
Permalink Submitted by Alan - IRA critic on Thu, 2025-02-13 12:23
I will assume that the client reached 74 in 2024 and therefore passed after RBD. If not, please advise.
Yes, assuming ownership will produce the lowest RMD and for years prior to reaching their own RMD age will eliminate RMDs altogether. However, being only 34, all distributions would be subject to the 10% penalty as the owner, so assumption of ownership needs to wait 25 years.
The new RMD option from Sec 327 of Secure 2.0 comes into play here and while the SS will have to take beneficiary RMDs, Sec 327 allows the SS to make an election to be treated as the owner for RMD purposes and can then use the Uniform Table to determine the annual beneficiary RMD using their attained age. To be clear, the spouse is still a beneficiary for all other purposes other than RMDs. The new Uniform Table is included in IRS Notice 2022-6 and includes ages down to 10. The beneficiary RMD for a 35 year old is only 1.58% of the prior year end balance, so very low. The table is entered each year rather than the first divisor being reduced by 1.0 each year. The SS should use this table until age 59.5 and can then assume ownership completely as in the past. That will stop the beneficiary RMDs until RMD age, and voluntary distributions will be penalty free (over 59.5).
However, Sec 327 only applies to a sole spouse beneficiary, and there are other beneficiaries in this case. While not specifically stated, I think the SS can still use this rule, but only after separate inherited IRA accounts are created, so it is best if all the beneficiaries create separate inherited IRA account before year end. The spouse will then be the sole beneficiary on 1/1/2026 of their own account and can then make the election to be treated as the owner for RMD purposes starting in 2026. Since custodians can easily get confused by this new rule and misunderstand the request, the SS must be very clear that they want to be treated as the owner for RMD purposes only under Secure 2.0 Sec 327 and do NOT want to become the actual owner. The beneficiary account remains titled showing the SS as the beneficiary of client and the client’s name will still be in the title.