Calculating minimum required distributions for children of deceased IRA owner

[Guest jusducki]

Client dies at age 69, having taken no distributions from her IRA. Three adult children inherit IRA, all of which are less than 59 1/2. Are they required to take a RMD based on their life expectancies? If so, do they have option to select settlement option, such as life only or 10 yrs certain, etc.? Additionally, is there a site that will provide approx. calculation of the amount they'll have to take each year? (None want to take any distribution so I want it to be for the least possible). Thank youl.

[Mary Kay Foss]

Since the owner of the account was under 70.5 there are two choices for payouts. The beneficiaries can use their individual life expectancies or take the entire distribution by December 31 of the 5th year after the death (5-year rule).

The distributions over life expectancy start out very low. You use the single life table which you can find in IRS Pub 590 or the IRS Regulations. For example, a beneficiary that will be 47 in the year after the death, has a 37 year life expectancy. That means he/she would divide the balance on 12/31 of the year of death by 37 and take that amount out by the following 12/31. The distribution will be less than 3% of the balance. The next year they use 36.0 as the factor (the life expectancy decreases by 1.0 each year). They can take a larger amount but there is a 50% penalty for taking less than the required amount annually.

With the 5 year rule, nothing needs to be taken until the 5th year but then it's all gone.

I'd recommend that they go with life expectancy. The amounts are small and if they have a large need for funds at some point, they can take a larger distribution.