Minor Beneficiary
Interesting Fact Pattern:
T-IRA owner, aged 62, passed away in 2021. The beneficiary is her son, who was 20 years old at the time of her death and qualifies as an Eligible Designated Beneficiary (EDB). As an EDB, the son has two options for receiving distributions:
- Stretch Option: He can “stretch” the distributions based on his life expectancy, which would require annual Required Minimum Distributions (RMDs) until he turns 31. This option provides a total payout period of 13 years (3 years as a minor, plus 10 years).
- 10-Year Rule: Alternatively, he can choose the 10-year rule, which does not require any minimum distributions. This option allows him to take income at any time within the 10-year period, offering more flexibility.
My thought is that the 10-year payout might be more beneficial for the son, as it provides greater flexibility without the obligation of RMDs
Permalink Submitted by Alan - IRA critic on Thu, 2025-06-26 11:12
The two options are correct, but EDB treatment only provides 11 years of stretch (age 21 to 31). The annual RMDs would be very small, and therefore a large distribution at 31.
Opting into the 10 year rule eliminates any RMDs until age 30, but that distribution would also be large unless optional distributions were taken over the 10 years. If no distributions were taken in the early years, the hassle of the kiddie tax could be avoided.
On balance, the 10 year rule appears to have an edge.