3688 / How are the minimum distribution requirements met when an IRA owner dies before the required beginning date?

Beginning in 2020, beneficiaries who are not classified as eligible designated beneficiaries (most non-spouse beneficiaries) must deplete an inherited retirement account within 10 years of the original owner’s death.  When the IRA owner died before their required beginning date, beneficiaries subject to the ten-year rule can take distributions as they choose throughout the 10-year period, so long as the account is emptied by the end of year 10.

Post-SECURE act, one way an individual qualifies as an eligible designated beneficiary is if they are not more than ten years younger than the original account owner.  These beneficiaries are permitted to take distributions based on their own life expectancy and are not limited by the 10-year rule.  However, based on the “at least as rapidly” rule, the 2022 proposed regulations required a beneficiary to fully empty the account when the beneficiary’s life expectancy ended (regardless of whether they were still living).  While the rule was rarely insignificant if the beneficiary was younger, it penalized older beneficiaries.

Under the 2024 final regulations, eligible designated beneficiaries can take distributions over their own life expectancy or the original owner’s life expectancy, whichever is longer.  These calculations are based on the IRS single life expectancy table.

Spousal beneficiaries continue to be subject to more flexible pre-SECURE Act rules.  Under regulations proposed in 2022, spousal beneficiaries would have been required to elect to treat the deceased spouse’s IRA as their own by the later of (1) December 31 of the year following the year of the owner’s death or (2) the date they reached their required beginning date.  The final regulations eliminated this deadline, giving surviving spouses added flexibility.

However, surviving spouses are also subject to a new “hypothetical RMD” rule.  This rule is designed to prevent older surviving spouses from avoiding their own RMD requirements.  The IRS requires surviving spouses to take all RMDs required once they reach their RBD before executing the spousal rollover.  Those RMDs are not eligible for rollover.

Pre-SECURE Act Rules

If an IRA owner dies before the required beginning date, distributions were made under either a life expectancy method or the five-year rule.¹ After-death distributions from a Roth IRA were determined under these rules because the Roth IRA owner is treated as having died before the required beginning date.²

Life Expectancy Method

Under the life expectancy rule, if any portion of the interest is payable to, or for the benefit of, a designated beneficiary, that portion must be distributed over the life (or life expectancy) of the designated beneficiary ( Q 3696).³

To the extent that the interest is payable to a nonspouse beneficiary, distributions must begin by December 31 of the calendar year immediately following the year in which the IRA owner died.⁴ The nonspouse beneficiary’s life expectancy for this purpose is measured as of his or her birthday in the year following the year of the owner’s death and is determined using the Single Life Table.⁵ In subsequent years, this amount is reduced by one for each calendar year that has elapsed since the year of the owner’s death.⁶ After the death of a nonspouse beneficiary, the payout period to the successor beneficiary will be determined using the deceased beneficiary’s remaining life expectancy (based on the age of the beneficiary in the calendar year of death) reduced by one for each calendar year that elapses thereafter.⁷

For the treatment of multiple beneficiaries, see Q 3696.

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Planning Point: The term “stretch IRA” does not appear in the Internal Revenue Code, but describes the practice of IRA distribution planning that successfully permits the beneficiaries (e.g., a surviving spouse and a child of the owner) to receive (or “stretch”) distributions over their individual life expectancies under the foregoing rules.

Prior to the SECURE Act’s change, a younger beneficiary allowed for greater stretching given the longer life expectancy. When there are multiple beneficiaries, separate account rules must be followed for each designated beneficiary to use his or her own life expectancy for calculating RMDs.

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A surviving spouse who is the sole designated beneficiary of an IRA generally may elect to treat the IRA as his or her own (see Q 3690). Unless this election is made, distributions to a surviving spouse beneficiary must begin by the later of the end of the calendar year immediately following the calendar year in which the owner died, or the end of the calendar year in which the owner would have reached age 73 (72 for 2020-2022 and 70½ in earlier years).⁸ The payout period is the surviving spouse’s life expectancy, based on his or her attained age in each calendar year for which a minimum distribution is required.⁹ After the surviving spouse dies, the payout period is that spouse’s remaining life expectancy, based on the age of the spouse in the calendar year of death, reduced by one for each calendar year that elapses thereafter.¹⁰

A designated beneficiary who does not elect the five-year method but fails to timely start distributions under the life expectancy method may be able to make up the missed RMDs and pay the 25 percent penalty (down from 50 percent pre-SECURE 2.0) on the missed distributions, rather than receive the entire balance within five years.¹¹

Five Year Method

Non-designated beneficiaries may be subject to the five-year distribution period even after enactment of the SECURE Acts. Under the five-year rule, the entire interest must be distributed within five years after the death of the IRA owner (regardless of who or what entity receives the distribution).¹² To satisfy this rule, the entire interest must be distributed by the end of the calendar year that contains the fifth anniversary of the date of the IRA owner’s death.¹³

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Planning Point: The five-year period was expanded to six years if 2020 was one of the five years.¹⁴

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