Have You Reviewed Your IRA Beneficiaries?
Eligible Designated Beneficiary (EDB)
- A surviving spouse as the sole beneficiary - When an IRA owner dies before the date when they must take required distributions and has named their spouse as the beneficiary, the surviving spouse can assume the IRA as if it’s their own and delay distributions until they reach the age of 73. The IRA is treated as if it were the surviving spouse’s own IRA and required minimum distributions (RMDs) are based on the surviving spouse’s life expectancy. If the surviving spouse is older than the decedent, they may choose to leave the IRA as an inherited IRA and take RMDs based on the date the decedent would have been required to begin taking them.
- A minor child (under 18) - If the IRA owner died before the required beginning date (RBD), the RMD for years after the owner’s death is calculated using the minor’s life expectancy. When the minor child reaches the age of majority, then a 10-year distribution period begins (the child ceases to qualify as an EDB at this time). All IRA funds must then be distributed by December 31 of the year containing the 10th anniversary of the child reaching the age of 21.
- A disabled individual,
- A chronically ill individual, or
- An individual who is not more than ten years younger than the account owner
- Adult children without disabilities
- Trusts, estates, charities
What if a beneficiary is not named, or if an estate, charity, or a trust does not qualify to be named as a beneficiary? They would be subject to a five-year rule. All IRA funds must be distributed by December 31 of the year containing the fifth anniversary of the owner’s death. Failure to do so can subject the remaining IRA funds to a 50% excise tax.
These rules apply to traditional and Roth IRAs, although RMDs would not be required for Roth IRAs, but the account is still required to be distributed under the beneficiary rules. Here is a detailed inherited IRA roadmap to help you navigate inherited IRAs.