Among the most complicated and frustrating IRA rules are required minimum distributions (RMDs). RMDs are required on all traditional retirement accounts after a birth-year-specific required beginning date. For inherited retirement accounts, RMDs are also obligatory in the year after the previous owner’s death.

Inherited required minimum distribution rules remain one hidden way that the IRS hurts the bereaved. Inherited IRA owners are required to navigate complexity upon complexity just to discover what morbid rule they must follow.

On the topic of inherited RMDs, we recently advised on the following case:

We have an irrevocable multi-beneficiary trust inherited prior to 2020. We have been taking RMDs using stretch provisions based on the eldest beneficiary’s age for the past several years. This year, we dissolved the trust and created separate inherited IRAs for each beneficiary. Does this change how our RMDs are calculated?

It does not change how your RMDs are calculated.

Generally speaking, you have until September 30 of the year after the year of death to lock in how your RMD will be calculated.

Once that date passes, your RMD calculation has been fixed. With a multi-beneficiary IRA not qualifying for separate account treatment, a snapshot is taken using the age and life expectancy of the then eldest beneficiary and that snapshot is forever after tied to those inherited IRA assets.

This remains true, even if the eldest beneficiary later dies or the accounts are later separated.

IRS Publication 590B makes this clear:

If, as of September 30 of the year following the year in which the owner dies, there is more than one beneficiary, the beneficiary with the shortest life expectancy will be the designated beneficiary if both of the following apply:

• All of the beneficiaries are individuals.
• The account or benefit hasn’t been divided into separate accounts or shares for each beneficiary.

And elsewhere, Section 1.401(a)(9)-5, Q&A-7 states:

If the individual beneficiary whose life expectancy is being used to calculate the distribution period dies after September 30 of the calendar year following the calendar year of the employee’s death, such beneficiary’s remaining life expectancy will be used to determine the distribution period without regard to the life expectancy of the subsequent beneficiary.

While not the most favorable RMD rule imaginable, I’m sure it is still a relief to know that you don’t need to navigate the new SECURE Act rules just because you dissolved the trust.

To ensure that the new separate account owners are able to continue to calculate their required minimum distribution, the current inherited RMD divisor would need to be circulated so that they can continue the stretch provision calculation.

Photo by Jacek Dylag on Unsplash. Image has been cropped, rotated, and flipped.