Advanced Underwriting Consultants

Question of the Day – November 1

Ask the Experts!

Here’s the question of the day.

Question: My client’s spouse died earlier this year.  One of her assets is an IRA that she inherited from her late father.  The deceased was taking required minimum distributions (RMDs) based on her life expectancy when she died.  My client is now the beneficiary of that account.  What are the RMD requirements?

Answer: After the subsequent death of the original beneficiary, the inherited IRA account is payable to the new beneficiary named by the original beneficiary.

The stretch distribution period is the life expectancy of the original beneficiary, using the Single Life Table and the age she attained or would have attained on her birthday in her year of death, reduced by one (1) in each subsequent year.

Here’s an example.  Say the original account owner, aged 90, died in 2010.  His daughter, age 60 in 2010, chose to treat the account as an inherited account.  Her first stretch distribution was due on or before December 31 of 2011.

In year 2011, the daughter is 61 and the factor from the Single Life Table is 23.3.  The account balance for 12/31/2010 is divided by 23.3 (equivalent to 4.29%) and that’s the RMD for 2011.

The daughter’s spouse is the beneficiary of the account.  The RMD for 2012 would be determined by using the daughter’s age of 61 in the year of death and the Single Life Table.  The factor for the daughter’s age in 2011 is 23.3.  For 2012, the account balance on 12/31/2011 would be divided by 22.3 and that’s the RMD.  For 2013, the factor would be 21.3, for 2020 the factor would be 14.3, and so forth.

Eventually, the factor would be less than one, and any remaining account balance would have to be distributed to the beneficiary in that year.

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