Secure Act impact on decedent’s RMD?

[esetter]

A friend died in 2020. Does his estate have to take his remaining 2020 RMD or is that the responsibility of his two daughters, his beneficiaries. This was addressed in forum question http://www.fairmark.com/forum/topic/inherited-iras-rmds-and-qcds/, but I don’t know whether the Secure Act affects that answer.

Also, one of his daughters has a Chrone’s disease and qualifies for disability. Does this affect the 10 year RMD schedule for her portion of the inherited IRA?

[Alan S.]

Secure does not change the responsibility for the beneficiaries to complete the year of death RMD of the decedent. If the daughters were named as beneficiaries, they are jointly responsible for completing the year of death RMD, therefore if one of them wants to take a distribution large enough to cover the year of death RMD, that will satisfy the requirement and the other need not take a distribution.

Since the disabled daughter qualifies as an “eligible beneficiary” and the other does not, it is critical for the disabled daughter to create a separate inherited IRA account no later then 12/31/2021. She will get the full life expectancy stretch, while the other daughter will be subject to the 10 year rule. The disabled daughter therefore will need to take annual beneficiary RMDs starting in 2021, while the other daughter does not have to take annual distributions, but perhaps she should to avoid having the total inherited IRA becoming taxable in year 10.

It is not clear what will happen if the separate inherited IRAs are not established by the deadline. The IRS will have to clear this up with revised Regs.

[esetter]

Thanks so much, Alan. You’re always very helpful (and knowledgeable). Is the disabled daughter’s full life expectancy stretch based on her life expectancy or her late father’s?

[Alan S.]

It’s based on her life expectancy (Table I) using the age she will be on 12/31/2021. New RMD tables are expected to be in place starting next year that will reduce RMDs 4-6%.

It is possible that the IRA custodian will ask for some documentation to establish her disability, but if she collects SSDI, that may be all they require. Even though the disease is mostly incurable, her status on father’s DOD determines qualification as an eligible beneficiary and this never changes even if her condition improves.

[Lewis-H]

Section 114 of the SECURE Act increases the age at which an IRA owner, or participant in an employer-sponsored retirement plan, must generally begin taking RMDs, from the year in which they turn 70 ½, to the year in which they reach age 72, instead.

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