By Ian Berger, JD
IRA Analyst
Question:
Are the rules for a grandchild who inherits an IRA the same as the rules for a child who inherits?
Thank you,
Steven
Answer:
Hi Steven,
No, the rules are very different. An IRA owner’s child who is under age 21 when the owner dies is considered an “eligible designated beneficiary” (EDB). As such, the child can stretch required minimum distributions (RMDs) until the year he turns age 30, but must empty the remaining inherited account by the end of his age-31 year. However, if the IRA owner died before the owner’s required beginning date (RBD) for starting RMDs, the child can elect instead to have the 10-year payment rule apply. In that case, the inherited IRA must be emptied by the 10th year following the year of the IRA owner’s death, but no annual RMDs are required in years 1-9. On the other hand, a grandchild is a “non-eligible designated beneficiary” (NEDB). So, the 10-year payment rule applies and, if the IRA owner died on or after his RBD, the grandchild also must take annual RMDs in years 1-9.
Question:
I have a client who was born on November 27, 1959. Does he need to start RMDs at age 73 or age 75?
Thank you,
Glenn
Answer:
Hi Glenn,
For anyone born after 1950 and before 1960, such as your client, the first RMD year is age 73. The age-75 first RMD year applies to those born in 1960 or later. Note that the RMD for the first RMD year can be delayed until April 1 of the following year, but then two RMDs must be taken in the following year – one for the first RMD year and one for the following year.
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/children-vs-grandchildren-beneficiaries-and-the-first-required-minimum-distribution-year-todays-slott-report-mailbag/