Successor beneficiary question

Submitted by Tim Steffen on Thu, 2024-09-26 16:49

Husband died in 2023 at age 76 (so post-RBD) with an IRA, and his spouse was the primary beneficiary.  The wife died suddenly a month later, also in 2023, at the age of 71 (so pre-RBD).  The account is still in dad’s name today – it was never rolled to mom’s name or otherwise changed.  The beneficiaries of both mom and dad’s estates (after each other) are the 3 kids.  So – what is the RMD situation for these kids?

  • Our thought is that you treat dad’s IRA as staying as an inherited IRA fbo mom, since she never rolled it over to her own name.  Then upon mom’s death, her estate inherits the account as a successor beneficiary.  In this case, the IRA is subject to the 10-year rule (since it went to a successor beneficiary), with RMDs in years 1-9 (since the original owner, dad, was already taking RMDs), and those RMDs are based on mom’s life expectancy (since she was younger than dad).
  • The account is currently at another firm, however.  They are telling the kids that the account is subject to the 5-year rule (presumably because the estate is a non-designated beneficiary, but we don’t know their logic for certain).

So do you agree with either of those scenarios, or is there a third option we’re missing?



Submitted by Alan - IRA critic on Thu, 2024-09-26 19:46

Yes, your first scenario is correct. The 2023 RMD must be completed by the estate if not completed by husband prior to passing, and the 2024 beneficiary RMD is based on wife’s age in 2023, with the divisor reduced by 1.0 for 2024 and each year thereafter. After settling the estates, the executor should be able to assign the inherited IRA out of the estate (and the estate can then be closed) to the estate beneficiaries own inherited IRAs, but this will not change the annual RMDs.  All inherited IRAs will have to be drained in 2033.

The firm is incorrect because the estate is a successor beneficiary and Mom never became the IRA owner or defaulted into ownership.

There might have been a third option if there was a contingent beneficiary named by Dad and the time limit for the executor of Mom’s estate to disclaim on her behalf had not expired 9 months after Dad’s DOD, but that’s moot now.

Submitted by Tim Steffen on Mon, 2024-09-30 11:15

Thanks Alan.  One follow up – you said the initial RMD factor would be based on wife’s age in 2023, the year she inherited it. I would have thought it was based on her age in 2024, the year after she inherited it, and then reduced by 1 each year thereafter.  And we thought that was always the case with a beneficiary – you use their age the year after death to start the calculation. Can you clarify that for me?

Submitted by Alan - IRA critic on Mon, 2024-09-30 15:25

This is a very unusual scenario (beneficiary passes in the same year as the owner). If she had lived into 2024, that would have been the case. However, because she passed in 2023, the “ghost life expectancy” applies, which is determined using the beneficiary age in the year of death with 1.0 reductions annually thereafter. Her 2023 single life table divisor is not actually used for 2023 but that divisor reduced by 1.0 for 2024 will apply to 2024 with additional 1.0 reductions thereafter.

This approach is confirmed in the Secure Act  Final Regs. The applicable paragraph is copied below:

“However, as an exception to these general rules, if the employee’s spouse is the employee’s sole beneficiary, then the applicable denominator during the spouse’s lifetime is the spouse’s life expectancy (which reflects an annual recalculation in accordance with section 401(a)(9)(D)). The final regulations clarify that in this case, for calendar years after the calendar year in which the spouse died, in determining the required minimum distribution to the spouse’s beneficiary, the applicable denominator is the spouse’s life expectancy calculated using the spouse’s age as of the spouse’s birthday in the calendar year in which the spouse died, reduced by one for each subsequent calendar year.”

Submitted by Tim Steffen on Mon, 2024-09-30 15:53

Appreciate the explanation – great work as always.

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