Required minimum distributions (RMDs) are pretty straight forward for IRA owners when they are alive; however, they can be a little more complicated when applied to beneficiaries. As a general rule, for the year IRA holders (excluding Roth IRAs) attain age 70½, and for every year thereafter, he/she must satisfy an RMD from his or her IRA. Once IRA owners reach the beginning date for RMDs (April 1 of the year following the attainment of age 70 ½), they are required to be taken each year.
Let’s focus on RMDs to IRA beneficiaries and how to handle aggregating them (if possible) when a beneficiary owns multiple inherited IRAs. We already know that a living IRA owner has the ability to calculate the RMD of each IRA and take the combined total from one or more IRAs. But does a beneficiary also have that same option?
You may be surprised to learn that the answer to this question is yes. A beneficiary that has inherited IRAs originating from the same decedent is allowed to take the full RMD from one IRA versus a separate RMD from each respective inherited IRA. You will find this addressed within IRS Treas. Reg. 1.408-8, Q&A 9, which states, “Generally, only amounts in IRAs that an individual holds as the IRA owner may be aggregated. However, amounts in IRAs that an individual holds as a beneficiary of the same decedent and which are being distributed under the life expectancy rule… may be aggregated, but such amounts may not be aggregated with amounts held in IRAs that the individual holds as the IRA owner or as the beneficiary of another decedent.”
Because beneficiaries do have flexibility in aggregating RMDs from IRAs they have inherited from the same decedent it may be wise to discuss with your clients. It is important to note that the beneficiary can elect to take more than the minimum distribution in any given year. Please see the regulations governing RMDs for additional guidance on distributions following death (i.e., multiple beneficiaries, estate and trust beneficiaries, etc.).
To discuss beneficiary distributions in more detail or review a client case with a Senior Consultant on our Resource Desk please call 877-275-7521.