IRA Owner Dies After Start of Required Minimum Distributions
I recently ran into a situation where an IRA owner did not designate an IRA beneficiary and carelessly left his IRA in his estate.
If the individual for whom the IRA was maintained dies on or after his or her required beginning date, the remaining assets in the IRA must be distributed at least as rapidly as under the method of distribution being used as of the date of death.
The “at least as rapidly” requirement is satisfied if each annual distribution is at least equal to an amount determined by dividing the account balance by the number of years in the applicable distribution period. If the IRA owner dies on or after the date the distribution has begun, and has a designated beneficiary, the applicable distribution period is the longer of the life expectancy of the designated beneficiary or of the IRA owner. When there is no beneficiary, it is the remaining life expectancy of the IRA owner. For instance, an IRA owner who is 81 when he dies, would have to distribute the balance over 8 years vs. naming a beneficiary who is 45 would have a much longer period to take the money out.
If the designated beneficiary is not the IRA owner’s surviving spouse, annual distributions are based on the beneficiary’s life expectancy using the beneficiary’s age in the year following the year of the IRA owner’s death. For subsequent years, the distribution period is reduced by one for each year that has elapsed since the year of the IRA owner’s death.
If the IRA owner’s spouse is the sole beneficiary, the applicable distribution period is measured by the surviving spouse’s life expectancy using the spouse’s birthday for each distribution calendar year after the calendar year of the IRA owner’s death up through the calendar year of the spouse’s death. Upon the spouse’s death, payouts are made under the method described above (reduce by one method) using the spouse’s age on his or her birthday in the year of his or her death.
If there are multiple individual designated beneficiaries, distributions are determined based on the life expectancy of the beneficiary with the shortest life expectancy (in other words, the oldest beneficiary). However, separate accounts may generally be created.