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RMD for inherited IRA - determining life expectancy
Old 09-02-2013, 04:05 PM   #1
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RMD for inherited IRA - determining life expectancy

I'm trying to figure out the IRS rules for calculating life expectancy for the purpose of beneficiary distributions. Is it the beneficiary's age as of their birthday in the year the distribution is taken or Dec 31 of the prior year? I do know the IRS tables in Pub 590.

Thanks in advance!
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Old 09-02-2013, 04:10 PM   #2
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It's the beneficiary's "new" age as of their birthday in the year of the distribution.
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Old 09-02-2013, 04:14 PM   #3
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Thanks, GrayHare!
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Old 09-02-2013, 04:20 PM   #4
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It's the beneficiary's "new" age as of their birthday in the year of the distribution.
Right, as long as the beneficiary IRA has been retitled in the name of the new beneficiary.
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Old 09-02-2013, 04:26 PM   #5
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Right, as long as the beneficiary IRA has been retitled in the name of the new beneficiary.
Really? This is non-spousal, and has been left in the name of the original owner w/FBO designation. I thought I read that in an Ed Slott book.
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Old 09-02-2013, 04:32 PM   #6
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Originally Posted by steelyman View Post
I'm trying to figure out the IRS rules for calculating life expectancy for the purpose of beneficiary distributions. Is it the beneficiary's age as of their birthday in the year the distribution is taken or Dec 31 of the prior year? I do know the IRS tables in Pub 590.

Thanks in advance!
There was actually a current thread about this on Boggleheads:

Bogleheads • View topic - How long will my inherited ira last?
And as happens at times, I learned a HUGELY valuable piece of advice that avoided a huge error I (and a few other posters) were making on inherited IRAs.

If the IRA beneficiary is a non-spouse, you only use the age the first year of distributions, then modify the divisor after that:

If the decedent passes away in 2012, and did not already take their RMD in 2012 before they passed on, then their estate takes out the RMD and places the money in the estate. 2012 is complete (as far as RMDs go).

In 2013, the beneficiary has to take out their first RMD. They use their age on December 31, 2013 in the Table I, to determine the divisor, and then take out their RMD.

However, for years 2014 and later, you don't go back to Table I - you need to subtract 1 from the divisor to determine your RMD.

Example: if you're age 50 on December 31, 2013, then your divisor on 2013 is 34.2.

But for 2014, you subtract 1, so your divisor is 33.2 (not the age 51 divisor of 33.3).

And for 2015, you subtract another 1, so your divisor is 32.2.

Continued on down, one poster on Boggleheads noted that at one point, reducing the divisor by 1 each year will eventually create an RMD divisor of less than 1 (in this example, at age 84, the divisor will be 0.2, which means you will, in theory, have to withdraw a minimum of 5 times the value from the prior year. ).
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Old 09-02-2013, 04:33 PM   #7
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Really? This is non-spousal, and has been left in the name of the original owner w/FBO designation. I thought I read that in an Ed Slott book.
That's what I meant but expressed poorly.
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Old 09-02-2013, 04:38 PM   #8
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Continued on down, one poster on Boggleheads noted that at one point, reducing the divisor by 1 each year will eventually create an RMD divisor of less than 1 (in this example, at age 84, the divisor will be 0.2, which means you will, in theory, have to withdraw a minimum of 5 times the value from the prior year. ).


Just found that out on my own spreadsheet! Annnnd, I was using the wrong age for Table 1.

Thanks, people!
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Old 09-02-2013, 05:07 PM   #9
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In case anyone is curious, "FBO" stands for "For The Benefit Of". Fidelity (maybe others) use "BDA", and I have no idea what that means, but they assured me it was correct.
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Old 09-02-2013, 05:26 PM   #10
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Google, you fool.

BDA is "beneficiary distribution account".
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Old 09-02-2013, 05:58 PM   #11
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It's amazing humanity made it this far without Google.
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Old 09-02-2013, 06:01 PM   #12
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It's amazing humanity made it this far without Google.
Ha!! I'm not sure I personally made it, but it's a fun ride
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Old 09-02-2013, 07:42 PM   #13
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Originally Posted by MooreBonds View Post
There was actually a current thread about this on Boggleheads:

Bogleheads • View topic - How long will my inherited ira last?
And as happens at times, I learned a HUGELY valuable piece of advice that avoided a huge error I (and a few other posters) were making on inherited IRAs.

If the IRA beneficiary is a non-spouse, you only use the age the first year of distributions, then modify the divisor after that:

If the decedent passes away in 2012, and did not already take their RMD in 2012 before they passed on, then their estate takes out the RMD and places the money in the estate. 2012 is complete (as far as RMDs go).

In 2013, the beneficiary has to take out their first RMD. They use their age on December 31, 2013 in the Table I, to determine the divisor, and then take out their RMD.

However, for years 2014 and later, you don't go back to Table I - you need to subtract 1 from the divisor to determine your RMD.

Example: if you're age 50 on December 31, 2013, then your divisor on 2013 is 34.2.

But for 2014, you subtract 1, so your divisor is 33.2 (not the age 51 divisor of 33.3).

And for 2015, you subtract another 1, so your divisor is 32.2.

Continued on down, one poster on Boggleheads noted that at one point, reducing the divisor by 1 each year will eventually create an RMD divisor of less than 1 (in this example, at age 84, the divisor will be 0.2, which means you will, in theory, have to withdraw a minimum of 5 times the value from the prior year. ).
Your example very nearly matches what my friend, who turned 50 a few weeks ago, is going through with his inherited IRA after his mother (remaining parent) passed away in 2012. Fidelity shows a quick derivation of the 2013 RMD which is the 12/31/2012 IRA balance divided by 34.2, his life expectancy factor. I also know after discussing this with our Fidelity Account Executive (I am an informal advisor for my friend and a fellow Fidelity client) that the divisor is decreased by one each year as part of the RMD (re)calculation.

My friend's mom did not take her RMD before she passed away so the RMD was taken out and added to his (inherited) Fidelity brokerage account and is taxable to him as ordinary income (not to the estate, but to him directly, reported on a 1099-R form). (It was equally split between him and his sister.) We will take out his 2013 RMD some time in the next month or two and use it to add to his Roth IRA (he qualifies for the extra contribution now that he is 50).
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