Inherited IRA RMD Calculation
#1:
Person died in 2021 leaving workplace death benefit to be paid out to 3 beneficiaries 34/33/33%. Beneficiary #1 34% paid out in 2021. Beneficiary #2 33% paid out in 2021.
Remaining beneficiary #3 benefit 33% paid into Inherited IRA in 2022 ($100k). Beneficiary is an EDB and using the Single Life Table. Beneficiary turns 65 in 2022 with a LE of 22.9.
In 2022 the first RMD is required from the Inherited IRA. As the IRA was established after to 2021 what would be used to calculate the RMD?
I.e. X/22.9=1st years RMD (What is X?)
Permalink Submitted by Alan - IRA critic on Fri, 2022-05-06 02:36
22.9 is the correct divisor. The numerator is 100% of the plan balance on 12/31/2021 since the other shares had been distributed before that date. If either of the other beneficiaries took a large distribution, any year of death RMD shortfall should have been satisfied.
Permalink Submitted by John Mlodynia on Fri, 2022-05-06 13:19
I am still not clear on the numerator.Perhaps I can make it more clear with context. The benefit paid out was from the NYS retirement system as the deceased was still working and to receive a pension in retirement. Upon death the benefit (taxable) ex: 300k was seperated and paid to each beneficiary in (34/33%) in 2021 and (33%) in 2022. The payout was not held in an IRA prior to death. It is not clear what value would be used on 12/31/2021 other than the amount received 33% in 2022. The final beneficiaries payout was tax sheltered in an Inherited IRA.
Permalink Submitted by Alan - IRA critic on Fri, 2022-05-06 15:14
New info – the deceased was still working for a state entity at death. Therefore, there is no year of death RMD required for the deceased because he passed prior to his RBD.
Beneficiaries receiving payout in 2021 – if they did a direct rollover to an inherited IRA, their numerators would be their inherited IRA balances on 12/31/2021.
Beneficiary who rolled to inherited IRA in 2022 – no change in answer. Since the 12/31/2021 remaining plan balance was owned 100% to this beneficiary because the others had already received distributions of their shares, that entire remaining plan balance is the numerator for this beneficiary. It does not matter when the direct rollover to an inherited IRA was made or how the 12/31 plan balance changed before the IRA direct rollover was done. Remember that the amount remaining in the plan would roughly be 33% of the total, but the distribution of other’s shares increases the share of the final beneficiary to 100%. This beneficiary will need to determine from the plan what the balance was on 12/31 if they did not receive a statement indicating that balance. They cannot use the amount that was rolled to an inherited IRA later since that amount likely changed from the year end balance.
Permalink Submitted by John Mlodynia on Fri, 2022-05-06 16:03
There was no year end statement figure to go by 12/31/2021. The amount paid to beneficiary in 2021 at 33% was the exact figure paid to the final beneficiary at 33% in 2022 which was based off of a total figure from 2021. Assume the 2022 beneficiary will be based on the payout received rolled into an Inherited IRA.* the benefit was not interest bearing and did not change. It was calculated by NYS based on past income. In other words it was a fixed lump sum paid out seperately to three beneficiaries At different points in time.
Permalink Submitted by Alan - IRA critic on Fri, 2022-05-06 18:04
Actually, since the remaining beneficiary is in an RMD distribution year in 2022, the plan will have to determine the RMD and not include it in the direct rollover. Govt plans are not subject to the Secure Act for beneficiaries when the participant passes prior to 2022, therefore the old rules apply here. So has the plan distributed the 2022 beneficiary RMD or not? If so, do you disagree with the RMD that was distributed? The RMD must still be distributed before any direct rollover to an inherited IRA, after which the last beneficiary should be able to stretch RMDs using the new Table I. Beneficiary should qualify for the separate account rules meaning that their own age applies instead of the age of the oldest beneficiary. Therefore, the plan would use 22.9 for the 2022 divisor, and the beneficiary will then use the 12/31/2022 inherited IRA balance with a divisor of 21.9 for the 2023 RMD.
Permalink Submitted by John Mlodynia on Fri, 2022-05-06 20:08
There was no RMD distributed at any time to any beneficiary. I am trying to figure the 2022 RMD from the resulting Inherited IRA for the final beneficiary who received the Inherited IRA in 2022 whereas the other beneficiaries were paid in 2021. For the final 2022 beneficiary who received 33% of the total lump sum payout I believe I must take the Inherited IRA initial amount ($100k-same as beneficiary at 33% in 2021) and base the RMD off that for 2022.$100,000/22.9=$4,366.81
Permalink Submitted by Alan - IRA critic on Fri, 2022-05-06 20:52
Based on your prior posts, the beneficiary RMD for 2022 would be as you calculated. However, because this is a non spouse beneficiary, no distribution made is eligible for rollover, whether an RMD or not. You indicated that the state plan did NOT distribute a 2022 RMD and allowed the entire balance to be rolled over. The only explanation for that, other than a plan error, is that the plan treated the 5 year rule as being applicable instead of life expectancy. Under the 5 year rule, the plan can roll over the entire balance without an RMD. The 5 year rule can apply if the participant passes prior to RBD, which was the case here. However, there is also a special rule that states if the direct rollover is completed by the end of the year following the year of death, the beneficiary can restore LE RMDs even though the plan may have required the 5 year rule. When this occurs, the beneficiary must take out the RMD from the inherited IRA using the LE rules and continue into future years. Since no distribution can be replaced, you need to be sure that no RMD was paid by the state plan, and if so you must distribute the RMD as you calculated from the inherited IRA by year end.