Inherited IRA distribution rules

[rshaf1]

My sister died in September 2018. She was 68 years old and died before the required beginning date for taking her IRA RMDs. Her IRA funds (Traditional and Roth) were just recently assigned out of the estate to the estate beneficiaries (2023).

I understand how the 5 year rule applies as she died in 2018.

But reading this topic on the IRS website: 

https://www.irs.gov/retirement-plans/plan-participant-employee/retirement-topics-beneficiary

"Death of the account holder occurred before 2020"

 ...

"Non-spouse beneficiary options

If the account holder's death occurred prior to the required beginning date (or if the account is a Roth IRA), the non-spouse beneficiary's options are:

• Take distributions based on their own life expectancy, beginning the end of the year following the year of death, or
• Follow the 5-year rule"

What does the "Take distributions ...... year of death, or" mean? Is there another choice on taking distributions in addition to the 5 year rule?

Thanks for the help! These IRA rules make my head explode! 😊

[fanfare]

Did you get an IRA account titled with you as a beneficiary.?

@rshaf1 

[NCperson · Accepted solution]

@rshaf1 who was the beneficiary of the IRA? (I am not asking who was the beneficiary of the estate).

If the beneficiary of the IRA was the estate, then the 5 year rule applies.  Sweet and simple.  The estate should have been taking distributions as the beneficiary since 2018.  Did the trustee do that?  Since 5 years has gone by, the IRA should have been liquidated. 

if the estate was the beneficiary, the the remaining life table doesn't come into play because the estate is not a human..... 

It is very important to distinquish between the beneficiary of the IRA and the beneficiary of the estate.  if individuals were named beneficiaries of the IRA, then the IRA would have passed outside the will and therefore outside of the estate. Totally different set of rules if that is what occured. 

[dmertz]

"Is there another choice on taking distributions in addition to the 5 year rule?"

Not in this case because your question indicates that the decedent's estate, not an individual, was the beneficiary.  Because the estate does not have a life expectancy, the 5-year rule is the only option and applies even though the respective shares for each of the estate beneficiaries have been assigned out of the estate to separate inherited IRAs for the benefit of the estate beneficiaries.

Because the decedent died in 2018 and the 5-year rule applies, the inherited IRAs must be completely drained by the end of 2023.

Had the decedent specified the individuals directly as beneficiaries of the IRA and the account was split into separate accounts for the respective shares to each of the beneficiaries, each beneficiary would have been able to have chosen the option for annual RMDs based on their separate life expectancy in 2019, reduced by 1 for each subsequent year (except that 2020 RMDs being waived due to COVID).