Nonspouse beneficiary of Traditional IRA n

Financial Planning Tax Strategies
#1

Reading in J K LASSER’S YOUR INCOME TAX 2022 pg 247 regarding nonspouse beneficiary to Traditional IRAs, 10-year rule…“Under the 10 year rule, there are no annual RMDS prior to the 10th year. The beneficiary may receive distributions in some years and not others so long as the entire IRA is emptied by the 10th year after the year of the owner’s death.”

So it seems, currently anyway, that if I take my annual RMD on January 2 of each year that I remain alive, the granddaughter heir of my Traditional IRA should have only to exhaust this account by taking distributions within 10 years, paying the income taxes as distributions are taken, after the account is properly renamed right?

The other sources I have pursued are confusing and send mixed messages I think. Thank you for your thoughts.

Regards,
joesgirl

#2

the granddaughter heir of my Traditional IRA should have only to exhaust this account by taking distributions within 10 years, paying the income taxes as distributions are taken, after the account is properly renamed right?

The date retitled isn’t relevant. It is from the date of death.

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#3

So it seems, currently anyway, that if I take my annual RMD on January 2 of each year that I remain alive, the granddaughter heir of my Traditional IRA should have only to exhaust this account by taking distributions within 10 years, paying the income taxes as distributions are taken, after the account is properly renamed right?

Close, but not exactly. Assuming you are of an age to take RMDs (turned 70 1/2 in or before 2019, otherwise 72), you don’t necessarily need to take your full RMD on Jan 2. In the year that you die, if you haven’t taken your full RMD, it will be up to your beneficiary to take the remainder of your RMD for that year.

Your non-spousal beneficiary, as long as they are 18 or over, will need to fully distribute the account within 10 years after the date of your death, not within 10 years of renaming the account. The account is considered ‘inherited’ as of the date of your death. If your beneficiary is under 18, they will be able to initially take RMDs based on their life expectancy. Once they reach 18, they will have 10 years to fully distribute the account.

The other sources I have pursued are confusing and send mixed messages I think. Thank you for your thoughts.

I would suggest IRS Pub 590-B https://www.irs.gov/pub/irs-pdf/p590b.pdf Unfortunately, it looks like the new version is getting published this weekend, but the updated version should be available soon.

AJ

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#4

If your beneficiary is under 18, they will be able to initially take RMDs based on their life expectancy. Once they reach 18, they will have 10 years to fully distribute the account.

Thanks, AJ! That is a subtlety I never noticed before. I didn’t need to notice it until I started thinking about having a bit of my IRA headed to grandchildren; the youngest is eleven.

#5

Many thanks to all who responded! Very helpful points here for my estate planning which now is concentrated on making things not difficult for my executor and heirs. Having been the executor of the will/estate of 2 nightmares, I am creating a clear path for those who will address the dissolution of my own estate. Thanks again!

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#6

Many thanks to all who responded! Very helpful points here for my estate planning which now is concentrated on making things not difficult for my executor and heirs. Having been the executor of the will/estate of 2 nightmares, I am creating a clear path for those who will address the dissolution of my own estate. Thanks again! - joesgirl80</>

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I am trying to do the same thing, make it as easy for my heirs and executor as I can. If you don’t mind, could you share any of your strategies that will ease the burden.

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#7

Hello bighairymike: In response to your query:
“I am trying to do the same thing, make it as easy for my heirs and executor as I can. If you don’t mind, could you share any of your strategies that will ease the burden.” (sorry - have forgotten how to italicize)Here are some steps I have taken so far -and I am sure there may be arrows shot at me…

1 I am consolidating assets - I now have only one online broker instead of 3. I have closed some bank accounts.
2 I will do my RMD each year on Jan 2 instead of late December; in my mind this may eliminate another executor responsibility if it has already been addressed in the year of my death.
3 I am gifting some real estate now; this was tough for me to let go.
4 I have prepared a guide book for my executor and alternates as they are young and inexperienced. And they don’t want to talk about it! Written directions, suggestions for various: names of friends and relatives to notify/probate directions/how many death certs and what entities will require certifieds/how to get a house appraisal/account numbers with ID and passwords, etc. This project grows more than I anticipated!
5 Not financially related, but as an octogenarian, I am now downsizing my household clutter - donating “stuff” to charities that distribute or resell. I hope my descendants will appreciate this!

Good luck,bighairmike. Would love a reply.

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#8

The Letter of Instruction/Guide Book is especially important. I’ve also written, as separate documents, letters of goodbye, and these, too, are included with the copies of my will that my wife and daughter hold. In addition to them, I’ve written letters to friends who are especially important to me, which will be distributed to those friends. I update these documents whenever I update my will (which doesn’t happen often, but it has happened). The LoIs aren’t binding, but they are useful.

The LoIs themselves don’t contain my account logins and passwords; those I keep locked away separately. The only security risk I run in that regard is that the LoIs do contain instructions for accessing those logins/passwords.

Eric Hines

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#9

Hello bighairymike: In response to your query:
“I am trying to do the same thing, make it as easy for my heirs and executor as I can. If you don’t mind, could you share any of your strategies that will ease the burden.” (sorry - have forgotten how to italicize)Here are some steps I have taken so far -and I am sure there may be arrows shot at me… - joesgirl80

1 I am consolidating assets - I now have only one online broker instead of 3. I have closed some bank accounts.

Same here. I used to have accounts at Ameritrade, Vanguard and TRP. Over the years I methodically consolidated into Vanguard, and closed the rest.

2 I will do my RMD each year on Jan 2 instead of late December; in my mind this may eliminate another executor responsibility if it has already been addressed in the year of my death.

Mine start next year. I had hoped to avoid RMD’s all together by getting all my TIRA converted to Roth but fell about four years short. Should have started sooner.

3 I am gifting some real estate now; this was tough for me to let go.

I just sold my only real estate outside of my residence so this is as clean as it can be. I am right now adding a TOD to the deed so the property can pass outside of probate. Not every state allows this but Texas does.

4 I have prepared a guide book for my executor and alternates as they are young and inexperienced. And they don’t want to talk about it! Written directions, suggestions for various: names of friends and relatives to notify/probate directions/how many death certs and what entities will require certifieds/how to get a house appraisal/account numbers with ID and passwords, etc. This project grows more than I anticipated!

I have had one of these going for a while now. I open it up periodically as I think of something new to add. You post reminds me I need to add a section on passwords and another section on friends to notify.

5 Not financially related, but as an octogenarian, I am now downsizing my household clutter - donating “stuff” to charities that distribute or resell. I hope my descendants will appreciate this!

Good for you. I need to do this but knowing myself it will not happen. Lord help my daughter with my massive collection of important stuff.

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#10

Bacon writes: The LoIs themselves don’t contain my account logins and passwords; those I keep locked away separately. The only security risk I run in that regard is that the LoIs do contain instructions for accessing those logins/passwords.

I’ve also been thinking about how to make logins/passwords accessible in a secure way. Have come up with my own version of “two-step verification”. Although I haven’t implemented it yet, my plan (when I finally get around to it…soon) is to provide 1/2 the information to one of the beneficiaries under my will and the other 1/2 of the information to another.

For example, I have a safe that requires both a lock combination and a key to open. I store the lock and combo in different locations. I intend to take a photograph of each location and provide one location photograph to each of the trusted beneficiaries and tell each them that upon my death they each should search for the “location” in the photograph I provided to them to retrieve 1/2 the information they will need to access the safe. Both individuals will have to work together to successfully access the safe. This method should also prevent one individual from getting into the safe first and cleaning it out (which happened with one of my relatives but everyone was helpless to prove what they had taken from the safe…although we do know they had most certainly absconded with the gold coins). I intend to do something similar with account and password information, as well as for providing photo clues or hints to identify locations where other “valuables” are secreted. These photos in the wrong hands probably won’t make much sense to some stranger. However, my designated beneficiaries have familiarity with my property and should have an easier time figuring out the locations. It suspect that it will be sort of like a fun little scavenger hunt after I die!

Has anyone else tried anything like this?

MakingTrax

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#11

5 Not financially related, but as an octogenarian, I am now downsizing my household clutter - donating “stuff” to charities that distribute or resell. I hope my descendants will appreciate this!

They won’t appreciate it until they handle a hoarder’s house.

A friend sold many of the small items around my father’s property that were now “antiques”. That word bothers me because I used many of the items. The first time I walked into an antique store I was in my 20s and was very confused because I recognized and had or was using some of the items. There were a couple of items that I might have kept if I realized they were going to be sold but very little and they weren’t that important.