Inherited IRA—special RMD rules for nonspouse as beneficiary
Special rules regarding inherited IRAs may apply if you're a member of a group of beneficiaries or you're representing a trust, an estate, or an organization.
If you're a member of a group of beneficiaries
If you are a member of a group of individual beneficiaries, the usual rule is that you may base RMD calculations on the life expectancy of the oldest member of the group. However, you may be able to calculate RMD based on your own life expectancy if each beneficiary establishes his or her own separate inherited IRA by December 31 of the year following the account owner's year of death. This is an advantage for younger beneficiaries, especially if there's a significant age variance among the beneficiaries.
If separate accounts haven't been established by December 31 of the year following the year of the account owner's death by all the beneficiaries, RMD calculations will be based on the life expectancy of the oldest beneficiary. We strongly suggest consulting a qualified tax professional or attorney to determine the best course of action for your particular situation.
If you're representing a trust, an estate, or an organization
The more favorable RMD rules permitting calculation based on life expectancy are not available if the beneficiary is the owner's estate, a charity, or other organization. An entity beneficiary usually may use the five-year rule if the account owner died before RBD and may calculate RMD as the original IRA owner had during his or her lifetime, if the owner died after his or her required beginning date (RBD). If an entity is one of a group of beneficiaries, the individual beneficiaries may not be able to use their own life expectancies to calculate RMD unless the entity receives a lump-sum distribution or disclaims prior to September 30 of the year following the year of the account owner's death or unless separate accounts are established by all the beneficiaries by December 31 of the year following the year of the owner's death.
Certain trusts may be eligible to base RMD calculations on the life expectancy of the oldest beneficiary of the trust. Some trusts that do not qualify for this “look-through” provision may be required to take distributions over the generally shorter time period available for entity beneficiaries. Additionally, the separate accounting rules that may permit individuals to take their shares as separate inherited IRAs do not apply to the underlying trust beneficiaries in most circumstances.
In summary, some beneficiaries may qualify for more favorable tax treatment allowing for more advantageous life expectancy distributions. Appropriate planning is important to obtain such favorable treatment. For this reason, we strongly suggest consulting a qualified tax professional or attorney to determine the best course of action for your particular situation.