IRA Beneficiary Options

[Kathleen Reynolds]

#4255

If the IRA Owner dies before the Required Beginning Date (RBD):

• There are no Required Minimum Distributions (RMD) for the owner
• Beneficiary Options are:
  1. Life expectancy option.
     • For death years prior to 2020, Non spouse beneficiary (Non recalculated): Must take first RMD by December 31 of year following the owner’s death. For death years in 2020 or later, the 10-year rule is in place for non-spouse beneficiaries who are not exempt from the 10-year rule.
     • Spouse beneficiary (recalculated): Must take first RMD by the later of December 31 of the year after the owner’s death or the year the owner would have reached RMD age, had he lived. For birthdates on or before 6/30/1949, the RMD age is 70.5 and for birthdates on or after 7/1/1949, the RMD age is 72.
  2. Five-year rule. Under this option, distributions are discretionary, until the end of the 5th year when the entire balance must be distributed

Example:

• IRA owner turns 70½ in 2011
• His RBD is April 1, 2012
• He died prior to April 1, 2012

He died on March 31, 2012. Therefore, he died before the RBD. No RMD is due for the IRA owner, because he died before the RBD.

The beneficiary can take distributions:

• Over his (the beneficiary’s) life expectancy (Non recalculated). Life expectancy set in 2013. Distributions must be taken by December 31, 2013.
• Within five years. Distributions are optional until December 31, 2018, when the entire balance must be distributed.

If the IRA Owner dies on or after the RBD, for deaths prior to 2020:

• The RMD for year of death must be taken for the owner. If the owner did not take the RMD, then the beneficiary must take the RMD. This RMD is calculated as if the owner is still alive, even if taken after death.
• Beneficiary Options are based on the Life expectancy option, over the longer of:
  • Remaining Life expectancy (non-recalculated) of decedent, set in year of death.
  • Life expectancy of beneficiary set in year following year of death. Non-recalculated for non-spouse, recalculated for spouse.

If the IRA Owner dies on or after the RBD, for deaths prior in 2020 or later:

• The RMD for year of death must be taken for the owner. If the owner did not take the RMD, then the beneficiary must take the RMD. This RMD is calculated as if the owner is still alive, even if taken after death.
• Beneficiary Options are based on the Life expectancy option, over the longer of:
  • For a spouse, it’s the Remaining Life expectancy (non-recalculated) of decedent, set in year of death.
  • Life expectancy of beneficiary set in year following year of death for a spouse (non-recalculated for non-spouse),
  • For a non-spouse, the 10-year payout rule is in place for non-exempt beneficiaries. Those exempt, will follow one of the above.

 

The beneficiary must take first (beneficiary RMD) by December 31 of the year after the owner’s death.

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