SECURE ACT inherited IRA intricacy

[hbl3973]

Heard from a friend whose mother passed away in 2019.  She received an inherited IRA from her mom's estate.  While I certainly would think that it would be subject to pre-SECURE ACT RMD rules, one thing caught my eye in IRS publication 590b which states that the designated beneficiary for an inherited IRA is determined on September 30th of the year after the death.  This would suggest that my friend doesn't formally own the IRA until 9/30/2020, in which event I could see 2020 as the legal date of inheritance and the IRA would be subject to the new 10 year draining rule.

[dmertz]

The RMD changes in the SECURE Act apply with regard to decedents dying after 2019.  These changes do not apply in this case.

Because mom left the IRA to her estate, there was no designated beneficiary; a designated beneficiary can only be an individual.  (The beneficiaries of the estate do not constitute beneficiaries of the IRA, except in some cases where the decedent's spouse is the sole beneficiary of the estate).  Because the beneficiary of the IRA was not an individual, if the mom died before her Required Beginning Date for RMDs, distributions must be made under the 5-year rule.  If mom died after her RBD for RMDs, RMDs are based on mom's remaining life-expectancy based on her age in 2019.  Even if mom had died in 2020 or later, there are no changes in the SECURE Act that apply when the beneficiary is not an individual.

Only trusts, not estates, can be qualified for look-though treatment for determining RMDs.

Since the estate was a beneficiary (in this case apparently the only beneficiary) and is not removable as a beneficiary, the September 30 deadline does not apply.  The rules for the IRA being inherited by a non-individual apply.

[hbl3973]

I checked back with my friend and she and her two sisters were named as IRA beneficiaries.  Does that change the 2019 vs 2020 inherited IRA treatment?

[dmertz]

As indicated earlier. the SECURE Act changes do not apply because her mother died before 2020.

Since these individuals were designated beneficiaries and did not inherit through the estate, they have until December 31, 2020 to establish separate accounts to allow each to use their own age to determine beneficiary RMDs.  If her mother died before her mother's Required Beginning Date for RMDs each will then have the option to use the 5-year rule instead of annual distributions based on their individual ages.  If her mother died after her RBD for RMDs, annual distributions base on their individual ages is the only option.  If they fail to create separate accounts by the December 31, 2020 deadline, RMDs will be based on the age of the oldest sister.

If her mother died after her RBD for RMDs, the sisters are jointly responsible for completing any uncompleted portion of her mother's 2019 RMD.