RMD Calculation for inherited IRA prior to 2020
Hi
I would like to get some clarity on how to calculate the RMD of an inherited IRA when it was inherited before 2020. Here are the facts:
IRA owner’s date of death 09/05/2018
The IRA Beneficiary was the wife. They set it up as an inherited IRA for the spouse. The wife was 82 when she inherited the account, and her husband was taking RMDs.
I am calculating the RMD factor was done this way:
Using the current Table 1 single life expectancy, the factor for the wife at the age she was at husband’s death was 9.99 (Using age 82) and then subtract 6 (2024-2018(year of death), giving us a factor of 3.9
Is this correct? Then, the account will be drained in the next three years.
Thanks for any guidance.
Regards,
Eleonora
Permalink Submitted by Alan - IRA critic on Tue, 2024-10-29 14:39
The wife should have elected to assume ownership of the inherited IRA as the RMDs would then have been much lower because the Uniform Table would have applied. However, assuming that she is the sole beneficiary, if she failed to complete her beneficiary RMD in any year, she would have defaulted to ownership status in that year and the RMD would have been from the Uniform Table from then forward. Therefore, the first thing to determine is if she has already defaulted to owning the inherited IRA or not.
Now, to address your question, her beneficiary divisor as a sole spousal beneficiary is not reduced by 1.0 each year. The single life table divisor for each year comes directly from the table, using her age attained in each such year as follows:
2019 RMD – old table divisor for age 83 attained in 2019 as of 12/31/2019 was 8.6
2020 RMD waived by the CARES Act
2021 old table divisor for age 85 was 7.6
2022 divisor for age 86 from new RMD table was also 7.6
2023 divisor for age 87 was 7.1
2024 divisor for age 88 is 6.6
So if the RMDs were completed in all the above years and the inherited IRA did not default to ownership status, she could assume ownership now and her 2024 Uniform Table divisor will be 13.7. That would reduce her RMD by over 50% for 2024 and beyond. It would also be better for her own beneficiaries, who would have more years to take RMDs.
Above assumes that the age on 12/31 of each year is as stated.
Finally, there is yet another variable that applies if husband was at least 2 years younger than her, as his age (so called ghost rule) would be used for her beneficiary RMDs. If his age was used the divisor would be reduced by 1.0 each year. But because her divisors are reduced by much less than 1.0 each year, if she started using his younger age, eventually the RMDs would be less by shifting to her age, and at that point her divisors would apply because they would then produce a lower RMD. — Ignore all this if he was not at least 2 years younger than her.