Personal Finance (Not Investing) • IRA Inheritance

That's correct with the TIRA assuming the second spouse also passes post RBD.

Incorrect for Roth IRA. Because all Roth owners pass prior to RBD the beneficiary of the last spouse to pass will have no annual RMDs in years 1-9 of the 10 year rule, allowing the inherited Roth to be untouched until year 10. Table I will not apply.

Hmm, I'm reviewing pub 590-B, and I'm not convinced Alan S. is correct, as to Roths anyways. (Nor am I convinced he's incorrect).

It's very confusing because there are 3 main categories of (individual) beneficiaries:
1) Spouse
2) "eligible designated beneficiary"
3) "individual (other than an eligible designated beneficiary)"

Category 2 is for minor children and the like. I'm pretty sure that in our case (adult, non-disabled offspring of the account holders), we're category 3.

OK, so putting that into action, for Roths (these are long-aged Roths - not recently converted/started):

Page 35:
"Distributions After Owner's Death
If a Roth IRA owner dies, the minimum distribution rules
that apply to traditional IRAs apply to Roth IRAs as though
the Roth IRA owner died before their required beginning
date. See When Can You Withdraw or Use Assets? in
chapter 1.
Distributions to beneficiaries. Generally, the entire interest in the Roth IRA must be distributed by the end of
the 5th or 10th calendar year, as applicable, after the year
of the owner's death unless the interest is payable to an
eligible designated beneficiary over the life or life expectancy of the eligible designated beneficiary."

OK, so, we need to look at the rules for a regular IRA owner who died before beginning RMDs (page 9)
"Owner Died Before Required Beginning
Date
If the owner died before their required beginning date (defined earlier) and you are an eligible designated beneficiary (such as and including a surviving spouse who is a
sole survivor), you must generally base your required minimum distributions for years after the year of the owner's
death using your single life expectancy shown in Table I"
So, this section addresses category 1 (spouse) and category 2 ("eligible" beneficiary), but not category 3 ("individual (other than an eligible designated beneficiary)")

And I don't see category 3 addressed anywhere in this part of the publication's text. It's a sloppily written pub, IMO. I guess I *inferred* that in the absence of something specific, category 2 (RMDs using table I) was the best fit, but yeah, that's an inference. I could also try and go through the actual law. But it's weird that the main IRS publication written about this, for a main category (adult children inheriting their parent's Roth IRA), with 3 defined categories of beneficiaries, only 2 of them are explicitly addressed.

10-year rule. The 10-year rule requires the IRA beneficiaries who are not taking life expectancy payments to
withdraw the entire balance of the IRA by December 31 of
the year containing the 10th anniversary of the owner’s
death. For example, if the owner died in 2023, the beneficiary would have to fully distribute the IRA by December
31, 2033.
The 10-year rule applies if (1) the beneficiary is an eligible designated beneficiary who elects the 10-year rule, if
the owner died before reaching their required beginning
date; or (2) the beneficiary is a designated beneficiary
who is not an eligible designated beneficiary, regardless
of whether the owner died before reaching their required
beginning date.
For a beneficiary receiving life expectancy payments
who is either an eligible designated beneficiary or a minor
child, the 10-year rule also applies to the remaining
amounts in the IRA upon the death of the eligible designated beneficiary or upon the minor child beneficiary reaching the age of majority, but in either of those cases, the
10-year period ends on December 31 of the year containing the 10th anniversary of the eligible designated beneficiary's death or the child's attainment of majority.

Payment under the 10-year rule. If the IRA owner
dies before the required beginning date and the 10-year
rule applies, no distribution is required for any year before
the 10th year.

Statistics: Posted by Alan S. — Sat Aug 17, 2024 4:38 pm — Replies 6 — Views 606