By Sarah Brenner, JD
Director of Retirement Education
We have a client that owns two substantial IRA accounts plus a smaller beneficiary IRA. Does the beneficiary IRA have its own RMD rules (the client has owned it for 10 years and has been taking RMD’s from it based on the old stretch IRA rules)? Or can the beneficiary IRA be lumped together with the other IRA’s for RMD calculation purposes? If so, can this year’s total RMD be withdrawn from the beneficiary IRA without having to touch the other two IRA’s?
Your client’s own IRAs and the inherited IRA are separate entities with their own guidelines. If the client inherited the IRA before 2020 it would be subject to the old pre-SECURE Act rules. That means that annual RMDs would be required. These RMDs are calculated separately from any RMDs that might be required on his own IRA. He cannot aggregate the RMD from the inherited IRA with the RMD from his own IRAs. This is not allowed. He can aggregate RMDs for his own two IRAs, but the RMD from the inherited IRA must be taken from the inherited IRA.
Dear Mr. Slott:
Thank you for all you do to keep advisors informed! I read your columns regularly in Investment News and wherever else they appear.
I have a scenario, and then a two-part question for you.
I had a 71-year-old client pass away in February 2021. He was not yet required to take RMD’s due to the Secure Act extension to age 72. His daughter has inherited his IRA. She named her spouse as primary beneficiary. If the daughter were to pass away before her 10-year distribution period ends, what is the status for the surviving spouse beneficiary re: his own RMD’s? Must he liquidate by the end of her 10-year period? Does he get a lifetime RMD period as surviving spouse beneficiary, or something else? Second part of the question, same scenario, but for an Inherited IRA opened pre SECURE Act? What happens if daughter dies under that scenario, re: the surviving spouse beneficiary’s own RMD period? Thanks in advance for your reply.
This is an interesting question. If the IRA owner dies in 2020 or later, the SECURE requires that the 10-year rule applies for designated beneficiaries. If that beneficiary dies prior to the 10-year period being over, then the successor beneficiary would need to empty the account by the end of whatever remains of the 10-year period. The successor does not get a new 10-year period, nor can the successor beneficiary stretch payments.
If the original IRA owner had died before the SECURE Act, the beneficiary would have been eligible for the stretch. However, if that first beneficiary dies after the SECURE Act went into effect, the successor beneficiary would be subject to the 10-year rule and would need to empty the inherited IRA by the end of the 10th year following the year of the original beneficiary’s death. As successor beneficiary, they get the 10-year rule, even if the successor is the spouse of the first beneficiary.
Question: We have a client that owns two substantial IRA accounts plus a smaller beneficiary IRA. Does the beneficiary IRA have its own RMD rules (the client has owned it for 10 years and has been taking RMD’s from it based on the old stretch IRA rules)?