Inherited IRA's

[MyrnaW560957]

Since IRA's and required distributions affect seniors greatly, please outline correctly how to calculate non-spouse inherited single person IRA before 2020. Specifically how is the first factor calculated the first year after the death of a non-spouse who had already started taking out RMD's himself and do you use that very same table that was in effect prior to 2020, or do you have to also somehow use new single beneficiary tables as they occur. Everybody, including brokers are very confused on the minus one calculation in the first place, and how new tables are treated in the 2nd place.   

I always assumed that the big financial institution handling my parent's IRA I inherited before 2020 was doing so in the correct way.  Now that I have to do distributions myself on my own IRA's I began to construct an Excel table that would give me hints of my future income year by year (and affect on taxes and my SS IRMA status--yeah, a shocker).  My own IRA RMDs turned out to be easy calculations, but looking back to figure out the factors for inherited non-spouse death prior to 2020 got complicated.  After getting 3 different answers from 3 different institutions, I am not so sure. And reading the IRA's 590-B for 2019 gave me limited answers.  I would gladly call the IRS, but that has been a huge problem since Covid, worse now.  Good luck.  You cannot contact the IRS, they only contact you (and it is usually bad news). Please, I would like an informed definitive answer, how was that calculating factor for a death in 2019 figured out in the first place, and how are subsequent factors figured out for the life of that same beneficiary in the light of new IRS Single Beneficiary tables when and if they occur?  Admittedly this is more of a baby boomer problem, but there are still tons of us out there. 

Here's what I think the answer is for my situation:  My first factor comes up in 2020, it is based on my ending age for that year (not when my birthdate is relative to when the RMD is taken out).  So let's say the factor is 18.  Every year after that, the factor is simply, minus one.  So 17 the next year, 16 the next etc.  Ah, but a new table of life expectancy factors is created in what 2024.  Does that have any bearing? Am I supposed to find the age I was in 2020 on the new table, take that factor and then subtract how many years have gone by to come up with the new factor for the current year's RMD?  Logically, the answer would probably be no, just continue doing the countdown from my original factor.  But--nothing matches up and I have institutions telling me to look at the revised Table I in '26 590-B. And when has the IRS been logical in all matters?

AARP, please educate me and Big Finance.  Those people that are handling our IRAs.  I figure that you can get to the bottom of this. Hopefully the IRS is still answering your phone calls. Thank you.

[DaveT443064]

This is one of the most genuinely confusing areas in all of retirement tax law and you have asked exactly the right questions. The confusion from your institutions is real — even professionals get this wrong. Here is the definitive answer.

Your first factor — death in 2019

Your instinct is correct. The beneficiary uses the life expectancy factor for their age attained in the year after the death of the IRA owner. For non-spousal beneficiaries, this is the only time they use the Single Life table — because non-spousal beneficiaries cannot recalculate in future years.

So if your parent died in 2019, your first factor comes from the Single Life table using your age on December 31, 2020. Then minus one every year after that. Your instinct on the factor of 18 and counting down is exactly right.

The 2022 new table question — this is where everyone gets confused

You do not simply continue your old countdown. There was a mandatory one-time reset. To properly calculate the 2022 RMD and reset the non-recalculation schedule, you must use the post-2021 Single Life Expectancy table and look up your age for the year you first started taking RMDs, then subtract the number of years that have passed. 

Here is what that means in plain numbers. Say your first factor in 2020 was 29.6 at age 55. By 2022 you would normally be at 27.6. But the reset says: go back to the new 2022 table, find the factor for a 55-year-old — which is now 31.6 — then subtract 2 years for the two years that have passed. Your 2022 factor therefore becomes 29.6, not 27.6, and you continue subtracting one each year from there. 

The simple rule going forward

Starting in 2022, the beneficiary's life expectancy is based on the new tables, using the age for which the life expectancy was originally determined — then subtract one for each year that has passed since. You do this reset once, in 2022, and then continue the minus-one countdown from the new baseline for the rest of your life.

Why your institutions gave you three different answers

Those who inherited IRAs before 2021 must adjust their life expectancy factors to catch up to the new life expectancy table — this adjustment affects only RMDs for 2022 and after. Many institutions missed this transition rule entirely and kept using the old table countdown. Some switched tables without applying the reset correctly. The IRS publication 590-B for 2022 and later is the definitive source and it does contain the worked example — it is just buried.

Your Excel model approach is exactly right. Once you apply the 2022 reset correctly you should find your numbers align. And you are absolutely right to be watching the IRMAA thresholds — the interaction between inherited IRA RMDs and Medicare premium surcharges is a problem that sneaks up on a lot of people in exactly your situation.

[Tempest332]

It was more than 10 years prior to 2020?  To my understanding you had to drain the inherated IRA in 10 years or less. 

[GailL1]

@Tempest332 

Prior to 2020, the "stretch" option allowed non-spouse beneficiaries of inherited IRAs to take Required Minimum Distributions (RMDs) over their own life expectancy, rather than all at once. This "stretched" taxable income over decades, maximizing tax-deferred growth. The strategy was replaced for most by a 10-year payout rule under the 2019 SECURE Act. 

from:  Charles Schwab

[GailL1]

@MyrnaW560957 

Go to the source - the IRS

IRS.gov - Retirement topics - Beneficiary 

Then go down to the topics of:Death of the account holder occurred before 2020

and then sub classification of:  Non-spouse beneficiary options

There were a couple of options BEFORE 2020- their choice included the “stretch option”

Maybe that is why you are getting several different stories -