Do I need to follow the 10-year IRA beneficiary rule if my mom died in 2001?

[ericgbirds]

Hi,

I just noticed that beneficiaries who are not "eligible designated beneficiaries" must distribute all of an inherited IRA within ten years. I think this went into effect in 2020. My mom died in 2001, and at that time I was allowed to use a life-expectancy table and am still drawing down this inherited IRA. Do I need to switch to the 10-year plan now (or should have done so in 2020)? Generally, when does a new way of doing things affect folks who are already doing things the old way? Are the old-way folks usually grandfathered in? I did look through the 2022 Pub 590-B, and I didn't see anything specific addressing people doing things the old way, but I could have missed it.

-Eric

[tagteam]

See https://www.journalofaccountancy.com/issues/2023/apr/beneficiary-iras-a-guide-to-the-rmd-maze.html

The passage of the SECURE Act means that most nonspouse beneficiaries who inherit IRA assets on or after Jan. 1, 2020, are required to withdraw the full balance of the account within 10 years.

[NCperson]

you are fine; those new 10 year rules you reference were only for deaths that occured on or after Jan 1, 2020.  

you are grandfathered in under the old rules.... 

look at the very top of page 11 - the first sentence in italics 

https://www.irs.gov/pub/irs-pdf/p590b.pdf

The 5-year rule generally applies to all beneficiaries if the owner died before 2020. It also applies
to beneficiaries who are not individuals (such as a trust) if the owner died after 2019. If the owner died after
2019 and the beneficiary is an individual, see 10-year rule next.

so the new 10 year rule affects deaths 'after 2019'.

[ericgbirds]

Thanks for your reply. However, I don't see that the text you pointed to says I'm grandfathered. FYI, my mom died after she was required to take RMDs. The bottom of page 10 says "The 5-year rule never applies if the owner died on or after his or her required beginning date." The top of page 11 does say as you pointed out "The 5-year rule generally applies to all beneficiaries if the owner died before 2020." These two statements appear to be in conflict, so I'm a bit confused.

I am glad to see the example on page 13 that starts with "Your father died in 2019 at the age of 80..." which does show using life-expectancy tables and neither the 5- nor 10-year rules. This example does seem to say that I do need to update the use of the table, so I will look to see if I need to do some make-up distributions to be on track assuming I'd started using the updated table in 2020.

I guess I don't see a definitive statement regarding my situation, but I'll go with the implied continued use of the tables as shown in the example.

-Eric

[tagteam · Accepted solution]

The original rules under the law prior to the SECURE Act still drive many of the requirements for distributions, so they are worth briefly reviewing.

The RMD rules for defined contribution plans are set out in Sec. 401(a)(9). These basic rules apply to all defined contribution plans, including regular and Roth IRA accounts; annuity contracts; custodial accounts; profit-sharing, Sec. 401(k), and Sec. 403(b) accounts; and Sec. 457(d) deferred compensation accounts.

Sec. 401(a)(9)(A) provides rules for RMDs during the life of an IRA owner, and Sec. 401(a)(9) (B) addresses RMDs after the IRA owner’s death.

Sec. 401(a)(9)(B)(i) defines rules for distributions if the IRA owner dies after RMDs have begun. If the IRA owner has already begun taking RMDs, the decedent’s remaining interest must be distributed at least as rapidly as when the owner was alive.

Sec. 401(a)(9)(B)(ii) requires that if the IRA owner dies before RMDs have begun, the account must be distributed within five years after the owner’s death. This requirement was significantly modified by the SECURE Act, as described below. Under the original law, the account could be distributed at any time within five years. A beneficiary could wait until the last month of the fifth year to take a distribution. This is not the case under the SECURE Act.

[dmertz · Accepted solution]

"However, I don't see that the text you pointed to says I'm grandfathered."

SEC. 401(b)(1) of the SECURE Act explicitly states:

IN GENERAL.—Except as provided in this subsection, the amendments made by this section shall apply to distributions with respect to employees who die after December 31, 2019.

This means that the SECURE Act has not changed anything with regard to your RMDs.  The only thing that has changed since 2002 with regard to your situation is that for 2022 and beyond the IRS has issued new life-expectancy tables which require you to recalculate your life-expectancy factor from on the new Single Life Expectancy table based on your age in 2002, reduced by 1 for each year after 2002.  This generally results in a slightly lower annual RMD than the amount based on the old life-expectancy table.  If your IRA custodian is doing the RMD calculation for you (and they are competent), they will have already done this.

[ericgbirds]

Fantastic! Thanks for much for the extra detail.

-Eric