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Inherited "Inherited IRA"


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A Client's wife inherited an IRA from her mother in 2017. The wife passed in 2020, so now the husband is the beneficiary of the Inherited IRA. Ignoring the waiving of RMDs for 2020 due to the virus, does the SECURE act now apply and does the husband have to take the full balance out within 10 years?

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No; it's based on the date of death of the original owner. Old rules still apply to this situation.

CORRECTION: If an inherited IRA owner passes after 2019, the new rules are applicable (the 10 year payout).  If it was prior to 2020, the old rules do apply.

 

Lawrence C. Starr, FLMI, CLU, CEBS, CPC, ChFC, EA, ATA, QPFC
President
Qualified Plan Consultants, Inc.
46 Daggett Drive
West Springfield, MA 01089
413-736-2066
larrystarr@qpc-inc.com

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On 4/7/2020 at 5:08 PM, Larry Starr said:

No; it's based on the date of death of the original owner. Old rules still apply to this situation.

It a actually switches to the 10 year, because the designated beneficiary died after02019. Had the designated beneficiary dies in 2019, the the successor beneficiary would continue the original beneficiary's LE payments.

Life and Death Planning for Retirement Benefits by Natalie B. Choate
https://www.ataxplan.com/life-and-death-planning-for-retirement-benefits/

www.DeniseAppleby.com

 

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On 4/9/2020 at 10:42 AM, Appleby said:

It a actually switches to the 10 year, because the designated beneficiary died after02019. Had the designated beneficiary dies in 2019, the the successor beneficiary would continue the original beneficiary's LE payments.

I'm pretty sure that is not correct.  The date of the original owner's death determines which rules apply. Took me a while to get back to this.

The fact that a designated bene dies after 2019 doesn't mean the new rules kick in.  Here is something just published (I have attached the full text as well):

Successor Beneficiary RMDs
If the original non-spouse beneficiary dies before the account has been fully distributed, the new inheriting beneficiary is known as a successor beneficiary.

If the original account owner died in 2020 or later, the new rule is that the successor beneficiary (regardless of who it is) will have to distribute the remainder of the account within 10 years of the death of the original beneficiary. (Note: within 10 years of the death of the original beneficiary, not 10 years of the death of the original owner.)

If the original account owner died in 2019 or prior, successor beneficiaries are subject to the same “old rules” as described above for the original beneficiary, with one exception: the successor beneficiary must continue to take distributions each year as if they were the original beneficiary.

By way of illustration, in the example above (with your father, the original owner, dying in 2018) if you were to then die in 2021, leaving the entire IRA to your sister, she would be required to continue taking RMDs from the account according to the exact same schedule you had been taking them, regardless of her own age. So if you hadn’t yet taken your 2021 distribution, she’d have to take it. Her 2022 distribution would be exactly what yours would have been if you were still alive: the 12/31/2021 balance, divided by 50.3.

 

Gmail - Inherited IRA Rules (Updated for 2020 to Reflect SECURE Act and CARES Act) _ Oblivious Investor.pdf

Lawrence C. Starr, FLMI, CLU, CEBS, CPC, ChFC, EA, ATA, QPFC
President
Qualified Plan Consultants, Inc.
46 Daggett Drive
West Springfield, MA 01089
413-736-2066
larrystarr@qpc-inc.com

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On 4/13/2020 at 12:58 PM, Larry Starr said:

I'm pretty sure that is not correct.  The date of the original owner's death determines which rules apply. Took me a while to get back to this.

The fact that a designated bene dies after 2019 doesn't mean the new rules kick in.  Here is something just published (I have attached the full text as well):

Successor Beneficiary RMDs
If the original non-spouse beneficiary dies before the account has been fully distributed, the new inheriting beneficiary is known as a successor beneficiary.

If the original account owner died in 2020 or later, the new rule is that the successor beneficiary (regardless of who it is) will have to distribute the remainder of the account within 10 years of the death of the original beneficiary. (Note: within 10 years of the death of the original beneficiary, not 10 years of the death of the original owner.)

If the original account owner died in 2019 or prior, successor beneficiaries are subject to the same “old rules” as described above for the original beneficiary, with one exception: the successor beneficiary must continue to take distributions each year as if they were the original beneficiary.

By way of illustration, in the example above (with your father, the original owner, dying in 2018) if you were to then die in 2021, leaving the entire IRA to your sister, she would be required to continue taking RMDs from the account according to the exact same schedule you had been taking them, regardless of her own age. So if you hadn’t yet taken your 2021 distribution, she’d have to take it. Her 2022 distribution would be exactly what yours would have been if you were still alive: the 12/31/2021 balance, divided by 50.3.

 

Gmail - Inherited IRA Rules (Updated for 2020 to Reflect SECURE Act and CARES Act) _ Oblivious Investor.pdf 181.16 kB · 0 downloads

 

Larry, the email you attached is full of errors. Please don't rely on it. I am going to call you.

Life and Death Planning for Retirement Benefits by Natalie B. Choate
https://www.ataxplan.com/life-and-death-planning-for-retirement-benefits/

www.DeniseAppleby.com

 

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