Stretch vs. 10-Year Payout
An Eligible Designated Beneficiary that inherits an IRA where the IRA owner dies before their RBD has the option of the 10-year payout or “stretch” –
Question?
When does that decision need to be made? In other words, when is the deadline?
For example, an EDB inherits an IRA in 2022, the “stretch” would mandate the first minimum distribution occurs by Dec. 31, 2023. That deadline was missed. IS the EDB now “locked in” to the 10-year payout? Can the EDB retroactively take the “missed” RMD?
Thank you
Permalink Submitted by Alan - IRA critic on Wed, 2024-09-18 11:23
The final Regs are drafted for qualified plans with IRAs following unless specifically stated otherwise. A qualified plan may specify the LE option or a mandatory 10 year rule or may provide for a beneficiary election. Such an election must be made by the end of the year following the year of death, or the plan default rule will apply. Further, this election is irrevocable once made.
It is expected that IRA agreements will automatically use the LE rule (ie. EDB would have to opt into the 10 year rule for it to apply). The same deadline will apply to notifying the IRA custodian if opting into the 10 year rule.
But these Regs are not final until 2025, so a reasonable interpretation of the prior Regs OR the new Regs could be used during the period from 2020-2024. As such, the client should be able to retain EDB treatment and make up the missed 2023 RMD and file a 5329. Anyway, the IRA custodian cannot force out a total RMD in year 10 like a qualified plan might, therefore the client need not fear of that happening.