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IRA BENEFICIARIES AND INHERITED IRAS: TODAY’S SLOTT REPORT MAILBAG

By Sarah Brenner, JD
Director of Retirement Education

Question:

Hi,

I have a client who died in 2021 before taking his 2021 RMD. He designated various charities as beneficiaries of his IRA.

The IRA custodian is advising the executor to take the RMD, however according to a previous post by Mr. Slott, Revenue Ruling 2005-36 states in this scenario the RMD is to be paid to the beneficiaries. I suggested the client ask the custodian to request confirmation from their legal department.  Any other steps?

Thank you,

LP

Answer:

You are right to question the IRA custodian on this. The rules are clear that when the IRA owner dies without taking the RMD for the year of death, it must still be taken. There is often confusion, though, over who must take it. When an IRA owner dies, the funds then belong to the beneficiary. So, it is the beneficiary who must take the year of death RMD if the IRA owner dies prior to taking it. This was confirmed by the IRS in Revenue Ruling 2005-36. You may want to share this guidance with the IRA custodian as support for your position.

Question:

Hi, I bought your 2020 edition of Retirement Decisions Guide and had a question regarding changes in IRA inheritance.

Regarding a Roth IRA, if a spouse inherits, is the spouse exempt from ever taking any distributions and if so, would that only be if the spouse made the Roth his/her own rather than treating as an inherited Roth?

And any nonspouse inheriting a Roth, are they only required to take the entire account by the end of the 10th year but do not need to take any before then?

Sorry to bother you but I can’t find these 2 questions addressed anywhere else.

Thanks for all of the advice you have shared over the years

Donna

Answer:

Thank up for being a reader of the 2020 Retirement Decisions Guide!

Roth IRA beneficiaries are subject to the new SECURE Act rules when a Roth IRA owner dies after 2019. A spouse beneficiary can do a spousal rollover to her own Roth IRA, or she can keep the Roth IRA as an inherited IRA. If a spousal rollover is done, no distributions are required. If it remains an inherited IRA, she can still use the stretch as an eligible designated beneficiary (EDB) under the SECURE Act or she can elect the new 10-year rule. A nonspouse beneficiary who is not an EDB would be subject only to the 10-year rule.

The 10-year rule requires that the account be emptied within 10 years of the year of death. However, there are no annual required distributions in the 10-year period.

https://www.irahelp.com/slottreport/ira-beneficiaries-and-inherited-iras-todays-slott-report-mailbag

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