By Ian Berger, JD
IRA Analyst
The SECURE Act completely changed the rules for beneficiary IRA (and workplace retirement plan) required minimum distributions (RMDs). It’s now been more than 6 years since the SECURE Act became law and almost 2 years since the IRS finalized its RMD regulations. Yet there’s still plenty of confusion about how these rules work. To help keep things straight, we present our beneficiary RMD cheat sheet.
Keep in mind that these are the rules for retirement accounts inherited after 2019. Pre-SECURE Act rules applied for accounts inherited before 2020, and those old rules were grandfathered and continue to apply for those accounts. Also note that there are separate rules for successor beneficiaries (beneficiaries of beneficiaries).
Where to Begin
To begin with, we need to answer two questions:
- Did the IRA owner die before or after the required beginning date (RBD) for starting RMDs? The RBD is April 1 of the year following the year the IRA owner reaches age 73 (if born between 1951 and 1959) or age 75 (if born after 1959). A Roth IRA owner is always considered to have died before the RBD.
- What kind of beneficiary do we have? An eligible designated beneficiary (EDB) is a surviving spouse of the IRA owner; a minor child (under age 21) of the owner; a chronically-ill or disabled person; or someone who is not more than 10 years younger than the account owner. A non-eligible designated beneficiary (NEDB) is an individual beneficiary who’s not an EDB. A non-designated beneficiary (NDB) is a beneficiary who’s not a person, such as an estate, a charity or a non-qualified trust.
Rules That Apply When a Traditional IRA Owner Dies BEFORE the RBD OR a Roth IRA Owner Dies at Any Time
EDB (other than a minor child): An EDB other than a minor child can either (1) take annual RMDs over the EDB’s life expectancy, or (2) use the 10-year payment rule. If the 10-year rule is elected, the inherited account must be emptied by December 31 of the 10th year following the year of death, but annual RMDs aren’t required during the 10-year period. A surviving spouse EDB can also do a rollover to the surviving spouse’s own IRA (usually not recommended until age 59½).
EDB (minor child): A minor child EDB can either (1) take annual RMDs until the year the child turns age 30 and then empty the inherited account by the end of the following year, or (2) have the 10-year payment rule apply. If the 10-year rule is elected, the inherited account must be emptied by December 31 of the 10th year following the year of death, but no annual RMDs are required.
NEDB: The 10-year rule applies, but annual RMDs aren’t required.
NDB: The 5-year rule applies. The entire account must be emptied by December 31 of the 5th year following the year of death, but no annual RMDs are required during the 5-year period.
Rules That Apply When a Traditional IRA Owner Dies ON OR AFTER the RBD
EDB (other than a minor child): An EDB other than a minor child can take annual RMDs over the EDB’s life expectancy. But if the EDB is older than the deceased IRA owner, the EDB can use the deceased person’s longer life expectancy in calculating RMDs. A surviving spouse EDB can also do a rollover to the surviving spouse’s own IRA (usually not recommended until age 59½).
EDB (minor child): A minor child EDB can take annual RMDs until the year the child turns age 30 and must empty the inherited account by the end of the following year.
NEDB: The 10-year rule applies, and annual RMDs are required during the 10-year period (based on the beneficiary’s single life expectancy starting in the year after the year of death).
NDB: Annual RMDs must continue over the deceased IRA owner’s remaining single life expectancy assuming the owner had lived (the “ghost rule”).
If you have technical questions you would like to have answered, be sure to submit them to [email protected], to be answered on an upcoming Slott Report Mailbag, published every Thursday.
https://irahelp.com/a-cheat-sheet-for-retirement-account-beneficiary-rmds/