RMDs for Inherited IRAs
As we finish 2024, one topic that has come up due to regulations becoming finalized is Inherited IRAs. An Inherited IRA has become a literal maze to determine what RMDs (required minimum distribution) are needed, and when. Below is our outline. Please remember there are exceptions to every rule, so please contact us with questions.
Original Owner pass away on or before 12/31/19
No changes
Original Owner pass away after 12/31/19
Beneficiary Types
Designated Beneficiaries (DB)
Individual that’s not an EDB.
Eligible Designated Beneficiaries (EDB)
Original owner's surviving spouse, the original owner's minor child, a disabled individual, a chronically ill individual, or any other individual who is not more than ten years younger than the IRA owner.
Nondesignated Beneficiaries (NDB)
Non-living beneficiary (e.g. charities, estates, most trusts).
Original owner began taking RMDs
Designated Beneficiaries (DB)
Responsible for taking distributions in the following years until the conclusion of the calendar year that includes the ninth anniversary of the account owner’s death. The remaining balance of the original owner’s interest in the IRA or qualified plan must be distributed entirely in the following year.
Amount of the RMD
Account value at the end of the valuation year divided by life expectancy.
Life expectancy is the greater of the remaining life expectancy of the deceased account holder or the DB For this purpose, the DB's life expectancy (as determined using the single life table in Treas. Reg. §1.401(a)(9)-9(b)) is calculated based on their age in the year following the death of the account owner. For calculating subsequent RMDs, the remaining life expectancy used in determining the initial RMD is subtracted by one for each year after the initial RMD.
Eligible Designated Beneficiaries (EDB)
Can take distributions over the longer of their own life expectancy or the original owner’s remaining life expectancy.
Nondesignated Beneficiaries (NDB)
No change (i.e. same rules as if original owner passed on/before 12/31/19).
Take required minimum distributions using the original owner’s life expectancy.
Original owner didn’t take RMDs
Designated Beneficiaries (DB)
Distributions must satisfy the ten-year rule.
No annual required distributions.
However, it could be tax advantageous to spread the distributions out over the ten years.
Eligible Designated Beneficiaries (EDB)
Can take distributions over the longer of their own life expectancy or the original owner’s remaining life expectancy.
Nondesignated Beneficiaries (NDB)
No change (i.e. same rules as if original owner passed on/before 12/31/19).
Distributions must satisfy the five-year rule.
Special note on surviving spouses.
The spouse can merge the Inherited IRA (if they’re the only beneficiary) into their own IRA.
Keep in mind that now surviving spouses do not need to receive RMDs from the Inherited IRA until the date the deceased spouse would have been required to receive RMDs had they lived to that age.
This is usually advantageous when the spouse that passed is younger than the surviving spouse.
Use the uniform lifetime table.
Special note on minor children.
Children are minors until they attain the age of 21.
At that time, the ten-year mandatory distribution rule begins. In the case of multiple minor children, the final regulations state that the ten-year mandatory distribution begins when the youngest of the minor children attains age 2.