Minor Inheriting Traditional IRA
One of my clients just passed away. He was 88 years old and taking RMDs. He left 10% of his IRA to a relative (but this person is not his child) that is 12 years old (lets call her Alex). He did list his granddaughter (lets call her Lauren, age 38) as the custodian for Alex share of the IRA since Alex is a minor. Alex’s share in $ terms is about $25,000. Alex and her mother are both on Supplemental Security Income (SSI). Alex and her mother are concerned about the income associated with the Inherited IRA and if that could compromise SSI benefits. A lot of complexity here given Alex’s age, kiddie tax, 10 year rule and SSI. Any insight/ideas here would be incredibly helpful.
- Alex is subject to the 10 year rule, correct? Or is there an exception since she is a minor?
- If Alex’s share is moved directly into an ABLE account does that provide any benefits or is that $25,000 IRA distribution counted as income and potentially capable of impacting SSI?
- Who do Alex (and her mother) go to to determine how a one time lump sum distribution for Alex’s 25k share could impact benefits? Perhaps she is just better off taking the RMDs until Alex is an adult?
I guess another option could be a disclaimer. Open to any and all ideas.
Permalink Submitted by Brandon Blanchard on Tue, 2025-08-19 21:16
One thing to clarify here, Lauren is not Alex’s mother and Lauren is not on SSI benefits. Only Alex and her mother are on SSI benefits.
Permalink Submitted by Alan - IRA critic on Tue, 2025-08-19 23:20
Can’t help much with the SSI requirements, but how did Alex qualify for SSI? Web search indicates that a child must be either blind or disabled to qualify for SSI, but disability can include severe functional limitations. Living with a non parent is unusual and complicates both the kiddie tax and SSI situation.
Now if Alex were disabled for chronically ill, she would be an EDB if a separate inherited IRA was created by the end of 2026, and due to her age, her annual RMDs would be very small, maybe low enough to not jeopardize the SSI.
She only inherited 10%, but the year of death RMD if not completed by the client becomes a joint responsibility of the beneficiaries. That means that some combination of the other beneficiaries could complete the year of death RMD and Alex would then avoid this particular distribution which could be large enough to affect SSI.
If she is not an EDB (not disabled), then the 10 year rule will apply with annual RMDs in years 1-9. But again, based on her young age, these annual RMDs would be very small, same as if she was an EDB, but in year 10 when she is no longer a minor she would have to distribute the remaining balance and that distribution would be higher than the first 9 years.
A qualified disclaimer would probably result in her share going ratably to the other 90% beneficiaries.
Permalink Submitted by Brandon Blanchard on Thu, 2025-08-21 16:27
I confirmed that Alex (12 year old) has autism and ADHD. She is considered disabled which is why she receives SSI. So what is the rule for Alex. She can take her 10% share of the IRA, move it to an inherited IRA and stretch distributions over her life expectancy, correct? If that is correct, perhaps it makes sense to move the annual RMD into an ABLE account?
Permalink Submitted by Alan - IRA critic on Fri, 2025-08-22 11:04
I cannot help with the SSI income or assets test, which can also be affected by state supplements, but it appears that the inherited IRA distributions or assets will disqualify her for SSI. While the distributions could be contributed to an ABLE account from which later qualified distributions would probably not affect SSI, the inherited IRA distribution will itself be income that must be reported on the tax return and will generate a 1099R from the IRA custodian.
To avoid this problem, client might have left her share to a supplemental needs trust instead of to Alex directly.
Also am not sure that disclaiming the inherited IRA would protect the SSI, even though it would eliminate the income and asset of the inherited IRA. Suggest consulting someone well versed in govt benefits to get a credible answer regarding the SSI issue.