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Tuesday, March 22, 2022

Email Consulting Guidance – Inherited IRAs

Email Consulting Guidance – Inherited IRAs

Posted by James M. Carlson
January 2022

Q-1. We have some confusion surrounding the SECURE Act and the death of a 1st generation beneficiary of an Inherited IRA.

IRA account owner died in 2015 naming his father as beneficiary . An Inherited IRA was opened for Father as bene of Son’s IRA. Father named his wife (Son’s mother) as beneficiary of the Inherited IRA. Father died in 2022. The RMD has not yet been taken, and of course, must be withdrawn. What is the appropriate way to proceed with future RMDs? Do RMDs continue as previously calculated for the second generation beneficiary as a spouse beneficiary to the 1st generation beneficiary? Or, is the spouse subject to the 10-year rule since they are not the spouse of the original account owner?

A-1. Your last question/statement/situation is correct. Upon the death of a grandfathered IRA beneficiary who was using the life distribution rule, the next beneficiary is required to close the inherited IRA by using the 10-year rule. The next beneficiary is unable to continue the schedule which applied to the deceased beneficiary. This is required even if the beneficiary is the spouse of the deceased IRA beneficiary. There is no special rule or treatment of a spouse beneficiary of an inherited IRA.

So, she as the next beneficiary must withdraw the 2022 RMD as calculated for her deceased spouse by 12/31/2022. She will then use the10-year rule to close the inherited IRA. Her deadline is 12/31/2032 or is it???????.

See page 11 from the 2020 version of Publication 590-B. The IRS says the 10-year period ends on the 10th anniversary of the beneficiary’s death So, if the person died on 1/15/2022. The 10th anniversary would be 1/15/32. This might be the deadline rather than 12/31/2032.

The IRS should furnish additional guidance on this situation and it will when it writes its proposed and final regulation. Although the IRS should, the IRS rarely explains why it adopts a certain position. I would argue- the IRS should not have this special rule where the deadline is the 10th anniversary rather than 12/31.

Posted by James M. Carlson at 14:53.37
Categories: Email Guidance