Successor Beneficiary RMD Rules
I would like confirmation on a few different scenarios regarding successor beneficiaries and the new rules under Secure Act.
Will a successor beneficiary always continue annual RMDs based on primary beneficiary’s RMD schedule? To clarify…
- Example 1: IRA owner died in 2022 after reaching RBD. Beneficiary named is an EDB so stretched distributions over beneficiary’s life expectancy. Beneficiary dies and DB named as successor beneficiary. Does successor beneficiary follow same RMD schedule as primary beneficiary in years 1-9 (based on primary beneficiary’s life expectancy), with the account emptied within 10 years of primary beneficiary’s death?
- Does the answer to the above change if successor beneficiary was not a DB (non-individual, charity or a non-qualifying trust)? Does the 5-year rule and ghost life expectancy come into effect at all with nonqualifying trusts named as successor beneficiaries?
- Example 2: IRA owner died in 2022 after reaching RBD. Beneficiary named is a non-EDB so subject to 10-year rule with distributions in year 1-9. Beneficiary dies and DB named as successor beneficiary. Does successor beneficiary follow same RMD schedule as primary beneficiary in years 1-9 (based on primary beneficiary’s life expectancy), with the account emptied within 10 years of original owner’s death (essentially continue with exact same schedule as primary beneficiary)?
- Does the answer to the above change if successor beneficiary was not a DB (non-individual, charity or a non-qualifying trust)? Does the 5-year rule and ghost life expectancy come into effect at all with nonqualifying trusts named as successor beneficiaries?
- Example 3: IRA owner died in 2022 before reaching RBD. Beneficiary named is a non-EDB so subject to 10-year rule with no distributions in year 1-9. Beneficiary dies and DB named as successor beneficiary. Account needs to be emptied within 10 years of original owner’s death, but is the successor beneficiary required to take annual RMDs?
- Does the answer to the above change if successor beneficiary was not a DB (non-individual, charity or a non-qualifying trust)? Does the 5-year rule and ghost life expectancy come into effect at all with nonqualifying trusts named as successor beneficiaries?
- Example 4: IRA owner died in 2017 before reaching RBD. Beneficiary stretched RMDs over her lifetime. In 2022, beneficiary dies and DB named as successor beneficiary. Does account need to be emptied within 10 years of primary beneficiary’s death? Is the successor beneficiary required to take annual RMDs?
- Does the answer to the above change if successor beneficiary was not a DB (non-individual, charity or a non-qualifying trust)? Does the 5-year rule and ghost life expectancy come into effect at all with nonqualifying trusts named as successor beneficiaries?
Permalink Submitted by Alan - IRA critic on Mon, 2024-07-15 17:49
Example 1: Yes, the successor beneficiary (never treated as a DB or EDB) must continue the RMD schedule of the EDB in years 1-9 and take a full distribution by the end of year 10. The ghost LE applies if the EDB is older but subject to the complication described below. These rules apply regardless of the type of successor beneficiary entity, so other than the 10 year rule nothing changes due to the nature of the successor. The 5 year rule would never apply, but the ghost LE would apply to older EDBs and carry forward to the successor of that older EDB.
Example 2: Yes, the difference here is that the DB was subject to the 10 year rule, so the outer limit year will still be 2032 as it was for the DB. The DB’s RMD schedule must also continue for the number of years left until 2032. Same answer as above if the successor is a non individual. Keep in mind that if the DB was older than the decedent, the DB’s RMD would be based on the ghost LE. In that situation, a new Secure Act complication would require that when the ghost LE is used, the inherited IRA also must be drained by the end of the year that the DB’s LE ends, and therefore both LE’s must be tracked to determine when the inherited IRA must be drained prior to the 10 year ending period. I consider this last complication an unnecessary complication to the already confusing RMD regs.
Example 3: No annual RMDs for either the DB or the successor, but the inherited IRA must be drained at 10 years. The type of successor beneficiary named is not a factor.
Example 4: Upon death of the pre Secure DB, the successor beneficiary must continue the RMD schedule of the DB in years 1-9 and drain the account in year 10.
In all cases when the year of death RMD was not completed by the DB, the successor beneficiary is responsible for doing so in the same manner as the DB was required to complete the owner’s year of death RMD.
I might have missed something, so please advise if anything is unclear. Note that the proposed Secure Act Regs don’t contain much related to successor beneficiaries, but because the intent of the Secure Act is to curtail the stretch, there is no way that a successor beneficiary would be allowed to terminate the RMD schedule of a DB and just wait until year 10.