Nonspouse Beneficiaries and 2021 RMDs: Today’s Slott Report Mailbag

By Sarah Brenner, JD
Director of Retirement Education
Follow Us on Twitter: 
@theslottreport

Question:

Dear Ed Slott and Company,

I am a longtime subscriber, having met and talked with Ed at several industry conferences, going back well over 20 years. Which, with all of Ed’s great work and active networking, puts me in a pretty big club!

In any event, a CPA has turned to me with a problem.

A client of his passed away earlier this year with $1.7M in her IRA. Her Estate was the beneficiary of the IRA. Her 80+ year old siblings are the beneficiaries of the estate. I know, not great facts. But, it gets worse.

The CPA consulted with the executor and the broker who handled the account. They all agreed not to do anything until hearing more from the CPA.

A few weeks after that, the broker and the Executor decided to liquidate the holdings in the IRA, even though an Estate IRA was never opened. They then sent a check to a Bank account for the Estate, which is of course a checking account, not an IRA.

I am told that IRS regulations prevent an estate from rolling back into an IRA. Is this true?

Thank you,

Tom

Answer:

Hi Tom,

Thanks for your support over the years! Unfortunately, the news here is not good. The rules are very strict when it comes to nonspouse beneficiaries, such as an estate, and rollovers. Once a distribution from an inherited IRA is paid to a nonspouse beneficiary, it is irreversible. It cannot be rolled over or put back into an IRA. Only a spouse beneficiary can roll over a distribution from an inherited IRA. We see this mistake made far too frequently and unfortunately there is no fix.

Question:

Hello,

I have a question about clients who have inherited IRAs and need to take an RMD for 2021 but did not take their 2020 RMD because of the Covid RMD waiver. Will they use the life expectancy number they used for 2019 RMD and subtract 1 or subtract 2 from that number to account for the skipped 2020 RMD?

Thanks,

Randy

Answer:

Hi Randy,

We are getting many questions on how to calculate RMDs for 2021. There is a lot of confusion in the wake of the 2020 waiver under the CARES Act. Here is how it would work. A nonspouse beneficiary who is required to take RMDs based on life expectancy would subtract 2 from the factor that was used in 2019. Even though no RMD was required for 2020, it is still counted when determining the life expectancy factor for 2021.

 

Content Citation Guidelines

Below is the required verbiage that must be added to any re-branded piece from Ed Slott and Company, LLC or IRA Help, LLC. The verbiage must be used any time you take text from a piece and put it onto your own letterhead, within your newsletter, on your website, etc. Verbiage varies based on where you’re taking the content from.

Please be advised that prior to distributing re-branded content, you must send a proof to [email protected] for approval.

For white papers/other outflow pieces:

Copyright © [year of publication], [Ed Slott and Company, LLC or IRA Help, LLC – depending on what it says on the original piece] Reprinted with permission [Ed Slott and Company, LLC or IRA Help, LLC – depending on what it says on the original piece] takes no responsibility for the current accuracy of this information.

For charts:

Copyright © [year of publication], Ed Slott and Company, LLC Reprinted with permission Ed Slott and Company, LLC takes no responsibility for the current accuracy of this information.

For Slott Report articles:

Copyright © [year of article], Ed Slott and Company, LLC Reprinted from The Slott Report, [insert date of article], with permission. [Insert article URL] Ed Slott and Company, LLC takes no responsibility for the current accuracy of this article.

Please contact Matt Smith at [email protected] or (516) 536-8282 with any questions.