On the 17th of April 2002, the Internal Revenue Service released the final RMD or required minimum distribution policies, which dramatically simplified the rules concerning RMD to include the post-death withdrawal options available to the beneficiaries of IRA savings account. The inherited IRA distribution options awarded to a beneficiary are established and determined by numerous factors.
This article will tackle the inherited IRA policies such as when the owner of the retirement account known as the participant died prior to the RBD or required minimum date; when the spouse was the beneficiary of the deceased IRA owner; and the impact of the age of the beneficiary relative to the age of the original account owner at the time of death.
The Required Beginning Date
If the original owner of the account dies prior to the RBD, the available options to the beneficiary will be based on who the beneficiary is and if he or she is named as one of the multiple beneficiaries:
Spouse as Beneficiary
When a spouse is the only beneficiary of an IRA saving account, he or she will be permitted to distribute the funds or assets steadily over his or her lifetime or completely by the 31st of December of the 5th year following the participant’s year of death. If the spouse chooses to withdraw the assets over his or her lifetime, he or she is necessitated to start procuring post-death distributions on either the year the participant would have became 70 ½ years of age or following the death of the original accountholder – whichever is later.
To accurately calculate post-death RMDs, the life expectancy of the spouse can be figured out through the IRS Publication 950’s “Single Life Expectancy Table in Appendix C”. Such table must be reviewed every year for the spouse to precisely compute the post-death RMD. For example, if the spouse is asked to start distributions in 2010, he or she must refer to the table to find out the life expectancy period for 2010. On the following year, he or she must again use the table to verify 2011’s life expectancy.
If the retirement plan is an IRA and the spouse is the one and only beneficiary, the inherited IRA rules grant him or her the chance to transfer the assets to his or her personal IRA.
Spouse in Multiple Beneficiaries/Non-Spouse Beneficiaries
A spouse included in the list of beneficiaries or a non-spouse beneficiary may withdraw the assets over the life expectancy of the oldest beneficiary or withdraw the entire balance by the 31st of December of the fifth year after the death of the participant.
Similar to the spouse as sole beneficiary’s life expectancy, the life expectancy for this case is established through the same index. However, the table is not needed to be checked every year. Rather, the one that would be used is the life expectancy for the year when the participant died, which can be found on the table. For every succeeding year, the life expectancy is decided by subtracting 1 from the last year’s life expectancy. When the beneficiaries choose to have the contributions withdrawn over the oldest beneficiary’s life expectancy, then the withdrawals must start by the 31st of December of the year after the death of the participant.
Keep in mind that the non-spouse and spouse beneficiary’s life expectancy option will be the default option when no selection is made.
Non-Spouse – Non-Person Beneficiary
An inherited Roth IRA named after a non-person like a charity or estate is obliged to withdraw the entire balance by the 31st of December of the 5th years after the participant’s year of death.
Participant’s Death After the RBD
If the original account owner dies following the RBD, these are the options granted to different beneficiaries:
- The spouse as the sole beneficiary is compelled to withdraw the assets over his or her life expectancy or the remaining life expectancy of the participant – whichever is longer. Similar to the spousal IRA rules, assets withdrawn over the original account owner’s life expectancy re-determines the beneficiary’s life expectancy accordingly.
- When it comes to multiple beneficiaries or non-spouse beneficiary of an inherited IRA, the assets are required to be distributed over the oldest beneficiary’s life expectancy or the remaining life expectancy of the original accountholder – whichever is longer.
- For non-person beneficiaries, the best IRA rates should be withdrawn over the remaining life expectancy of the account owner, which is established in the year in which he or she dies and then lessened by 1 every subsequent year.