By Andy Ives, CFP®, AIF®
IRA Analyst
Although many IRA owners are required to take required minimum distributions (RMDs), much confusion remains as to how the RMD is calculated. Factors include whether the original IRA owner reached his required beginning date (“RBD” – April 1 of the year after the year the IRA owner reaches age 73), the type of beneficiary, and the beneficiary’s age. Here are the basics.
Year-of-Death RMD. When an IRA owner is subject to lifetime RMDs, the year-of-death RMD cannot be avoided. This is true whether the IRA owner died on the first day of the year or the last. If any portion of the year-of-death RMD was not taken prior to death, it is the responsibility of the beneficiary to take whatever remains by December 31 of the year AFTER the year of death. Otherwise, penalties will apply. There is no special calculation using any of the beneficiary’s information for the year-of-death RMD. It is simply the RMD amount (or whatever remains) that the deceased IRA owner would have taken had he survived.
Eligible Designated Beneficiary (EDB). When a non-spouse EDB inherits either a traditional or Roth IRA, that EDB can take annual “stretch” RMDs. To calculate the first annual RMD, use the EDB’s age (on his birthday) in the year AFTER the year of death. From the IRS Single Life Expectancy Table, identify the corresponding factor. (For example, the factor for an individual who is age 50 is 32.5.) Divide the prior-year December 31 balance by the appropriate factor, and that is the RMD. For each successive year thereafter, do NOT go back to the Single Life Table. Instead, subtract 1.0 from the previous year’s factor, and divide it into the prior year-end balance.
Non-Eligible Designated Beneficiary (NEDB). NEDBs are subject to the 10-year payout rule. Year 1 of this window is the year AFTER the year of death. (For example, with a 2026 death, the 10-year period runs from 2027 through the end of 2036.) If the original traditional IRA owner died on or after the RBD, then annual RMDs apply in years 1 – 9 of the 10-year period. These RMDs are calculated in exactly the same way as the EDB RMD calculation outlined above. The only extra layer is that an NEDB must take a full distribution of the inherited IRA by the end of year 10. (Note that if the original traditional IRA owner died before the RBD or the NEDB inherited a Roth IRA, no RMDs apply within the 10-year period.)
Non-Designated Beneficiary (NDB). These are non-people, like an estate. If the IRA owner died before his RBD, the 5-year rule applies. There are no annual RMDs within the 5-year period. But if death occurred on or after the RBD, then annual RMDs apply using the “ghost rule.” As with all annual beneficiary RMDs, these begin in the year after the year of death. However, the “ghost rule” RMD calculation has a little twist. Use the deceased IRA owner’s age (at his birthday, whether or not he reached it) in the year OF death. Identify the corresponding factor from the Single Life Expectancy Table. Then subtract 1.0. Divide that factor into the 12/31 balance on the year OF death. This is the first RMD in the year AFTER the year of death.
Spouse Beneficiary. Surviving spouse beneficiaries have special RMD rules applicable only to them. We will discuss the spouse beneficiary options in an upcoming Slott Report.
If you have technical questions you would like to have answered, be sure to submit them to mailbag@irahelp.com, to be answered on an upcoming Slott Report Mailbag, published every Thursday.
https://irahelp.com/beneficiary-rmds-calculation-basics/