According to IRS publication 590-B, the required minimum distribution for an inherited IRA (for beneficiaries who are not more than 10 years younger) may be calculated by dividing the value of the IRA at the end of the year the person died by the life expectancy of the beneficiary at that time. So if the person died in 2020, for 2021 the RMD would be the value of the IRA at the end of 2020 divided by the life expectancy of the beneficiary. The instructions also state to "Reduce the life expectancy by 1 for each year after the year of death." Does that mean that for all the following years, the calculation would still use the original value from the end of 2020 or would it be the value of the IRA for the preceding year? This is an important distinction because the value could fluctuate. Also, the life expectancy used in the calculation will always be the original life expectancy minus the number of years that passed, right?
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The "10 years younger" is if you inherited from a spouse. If a non-spouse use Table III.
The RMD amount must be calculated each year using the IRA value at the end of the previous year.
You can ask the financial institution holding the IRA to calculate the RMD for you (they are required by law to do that if you request it - many just do it anyway.)
If you are the surviving spouse who is the sole beneficiary of your deceased spouse's IRA, you may elect to be treated as the owner and not as the beneficiary. If you elect to be treated as the owner, you determine the required minimum distribution (if any) as if you were the owner beginning with the year you elect or are deemed to be the owner.
Is it definitely true that "10 years or younger" only applies to spouses? IRS Publication 590-B seems to state otherwise (see below):
"Eligible designated beneficiaries.
An IRA beneficiary is an eligible designated beneficiary if the beneficiary is the owner's surviving spouse, the owner's minor child, a disabled individual, a chronically ill individual, or any other individual who is not more than 10 years younger than the IRA owner."
and
@jan271 wrote:
Is it definitely true that "10 years or younger" only applies to spouses? IRS Publication 590-B seems to state otherwise (see below):
"Eligible designated beneficiaries.
An IRA beneficiary is an eligible designated beneficiary if the beneficiary is the owner's surviving spouse, the owner's minor child, a disabled individual, a chronically ill individual, or any other individual who is not more than 10 years younger than the IRA owner."
and
"If the owner died before his or her required beginning date (defined earlier), and you are an eligible designated beneficiary, you must generally base required minimum distributions for years after the year of the owner's death using your single life expectancy shown in Table I in Appendix B, as determined under Beneficiary an individual later."
There are two different rules. The one that I pointed out is for the life expediency chart to use.
What you quote is the SECURE Act law that was passed that requires all funds in an inherited IRA to be distributed within 10 year of the death of the IRA owner unless you are an "eligible designated beneficiary" which is the owner's surviving spouse, the owner's minor child, a disabled individual, a chronically ill individual, or any other individual who is not more than 10 years younger than the IRA owner.
The publication tell you how to calculate the RMD if the Owner Died On or After Required Beginning Date and if the Owner Died Before Required Beginning Date.
It can get complicated for inherited IRA's.
Here is an article that explains it better:
https://www.fidelity.com/learning-center/personal-finance/retirement/non-spouse-IRA
When you are subject to the 10-year liquidation rule for new inherited IRAs (not grandfathered),
to spread the tax impact most evenly,
your divisor should be : 10 - N where N is the number of annual RMDs you already took.
In other words, with five years to go, you want to take out one fifth of the IRA,
OTHERWISE,
Take any amounts you wish at any time, that is your choice,
OR
take it all in a lump sum at the end of ten years.
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