RMD for Inherited IRA when owner died in previous year

[genelawson566]

Greetings:  Mom died in December 2023. Prior to her death, she did take her RMD for 2023.  I was named Primary beneficiary of her IRA.  The financial institution did not get around to transferring it to me until February 2024. So as of February 2024 I am the owner of this Inherited IRA.  I have determined I am an "designated beneficiary", so no special circumstances exist.  I am 76 years old.  When I asked the financial institution what my RMD would be for 2024, they stated because it was transferred to me in 2024 (not 2023), the RMD , for 2024 only,  would still be based on Mom's age (95) (as if she were still alive).  I was thinking my 2024 would be based on my age, Single Life Expectancy, 10 yr rule.   Who is correct?   Thanks in advance for your advice.  

[ThomasM125 · Accepted solution]

Per this excerpt from Publication 590 Distributions from IRA's, under the ten year rule, you would have until the year that included the 10th anniversary of the owner's death to fully distribute the IRA balance. I could find no stipulation that you would have to take a RMD equal to the RMD of the deceased in any year after the year of death: Pub 590

[genelawson566]

The section you highlighted is preceded by the qualifier of those not using the life expectancy.  As a mere designated beneficiary, I am required to use the single life expectancy table so this doesn't apply to may situation.  However, you pointed me in the right direction as to Publication 590-B which states:

"If the owner died on or after the required beginning date, the IRA beneficiaries are responsible for figuring and distributing the owner's required minimum distribution in the year of death. The owner's required minimum distribution for the year of death is generally based on Table III (Uniform Lifetime) in Appendix B. However, if the sole beneficiary of the IRA is the owner's spouse who is more than 10 years younger than the owner, use the life expectancy from Table II (Joint Life and Last Survivor Expectancy).

Note.

 

You figure the required minimum distribution for the year in which an IRA owner dies as if the owner lived for the entire year."

The key for my situation is the highlighted sentence with "in the year of death." Meaning, not the year after they died, just the year of death.  Consequently, the year after the death, I need to figure my RMD based on the 10 yr Rule and the ending balance of the account as of year end 2023 and I must use the Single Life Expectancy for my age. 

I'm going to call another financial institution I have IRA accounts at, even another Inherited IRA and get their take on the issue.  I'll post back as to what they say.  

Thank you for your response.  

[fanfare]

The person you talked to may have been confused by this applicable rule:

"If the owner died on or after his or her required beginning date (defined earlier), and you are an eligible designated beneficiary, you must base required minimum distribu-tions for years after the year of the owner's death on the longer of:
• Your single life expectancy shown in Table I in Appen-dix B, as determined under Beneficiary an individual later; or
•The owner's life expectancy as determined under Death on or after required beginning date under Bene-ficiary not an individual later."

--

The age used is your age on your birthday in 2024, which may not be your current age.

With that divisor you won't exhaust the IRA in 10 years, so you will have a balloon distribution in 2034.

You may want to take that into consideration when deciding how much to take out each year.

Note: Pub 590B still does not have the latest rulings from the IRS regarding your situation.

[genelawson566]

ThomasM125: " I could find no stipulation that you would have to take a RMD equal to the RMD of the deceased in any year after the year of death: Pub 590"

Thank you for this.  I wish I could find definitive language or an IRS created example to support my case, but that may be a futile search.  Assuming you/I are correct, it boggles my mind that a major brokerage could have this scenario wrong; giving bogus info to not just me, but , what , thousands of other clients?

[genelawson566]

FANFARE:  Well, first off, I made it clear to them I was NOT an eligible beneficiary, merely a designated beneficiary and even if I was an eligible, under the section you quoted, my Single Life would be longer than the remaining years of the deceased so my LONGER divisor would be used.  

However, you pointed me toward the more likely culprit leading to the misinformation given to me:

"Beneficiary not an individual.

 

If the beneficiary isn't an individual, determine the required minimum distribution for 2023 as follows.

Death on or after required beginning date.

 

Divide the account balance at the end of 2022 by the appropriate life expectancy from Table I (Single Life Expectancy) in Appendix B. Use the life expectancy listed next to the owner's age as of his or her birthday in the year of death. Reduce the life expectancy by 1 for each year after the year of death."

Thank you !

[dmertz]

As fanfare implied, your beneficiary RMDs are based on your life expectancy factor from the Single Life Expectancy table for your age attained in 2024, reduced by 1 each subsequent year, not on your mother's life expectancy.

[genelawson566]

dMertz: I totally agree, it is my brokerage that is saying because the IRA was not transferred to me until the year after Mom's death that I have to use Mom's life expectancy for 2024, then they say, years 2025 and going forward, I should use my life expectancy.   When the first rep in the IRA department told me this, I asked to be transferred to another rep for a second opinion and the second rep told me the same thing.  

[dmertz]

They are wrong.  You inherited this account and became the one for whom the account was maintained immediately upon her death.   The timing of the transfer to an IRA titled to you as beneficiary is irrelevant to determining RMDs.

They cannot force you to take any more than you are required to take, but being a beneficiary who is subject to the 10-year rule you might want to take out more than your RMD fro 2024 anyway.

[genelawson566]

Follow-up to my original Post:  I called my other brokerage to get their take on the matter.  They said that since 2020 with the Secure Act, they no longer calculate RMDs for Inherited IRAs because of the debate over whether one is required to take an RMD under the 10 yr Rule during those ten years or if one can just wait, if they want to, until Year 10 to deplete the account.  All they would do is refer me to their calculator, which, of course, because it does not ask "did you get the funds the same year the owner died?", the RMD answer was standard for the 10 Year Rule which I agree with. 

Then I called the original broker back and the rep agreed to forward the issue to a higher echelon and get back to me.  And he did just that.  The new response, instead of telling me the (what I think is the erroneous)  RMD amount, was to consult a tax professional.  To which I told him, fine and suggested that be their approach to all questions akin to mine instead of providing bad information which could lead to an IRS penalty if not enough RMD is taken in a given year.  In my case, my calculation is for a higher RMD than the broker's calculation.  So if I were to use the broker's RMD and the IRS determined not enough RMD was taken, I get levied with a 25% penalty on the difference.  Thanks to everyone for listening and contributing.  

[dmertz]

"In my case, my calculation is for a higher RMD than the broker's calculation."

This clearly indicates that they were calculating the 2024 RMD as if your mother died in 2024 instead of 2023, apparently by substituting the date of transfer for the date of death.