RMDs on inherited IRA

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gassert
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Joined: Thu Apr 26, 2007 7:50 pm

RMDs on inherited IRA

Post by gassert »

If an inherited IRA is inherited a second time then the RMD LE divisor is that of the original benefiary, not the sucessor beneficiary. In order to satisfy the RMD then you would take your account balance divided and there you are. for ex. $100,000 / 20 = $5k first year and so forth. In this case 5%.

The other option would be to take a life annuity if available or buy a SPIA. If you were young enough, then the effective "payout" of the annuity would be something less than 5%. So, you effectively stretch over a longer period. Attractive.

The real question is can a fixed period annuity be used? Even though the question of an inherited IRA starts to complicate things, we have to assume that the fixed period annuity ability to "satisfy" the RMD (by being classified as a "life" annuity) is the same for this as it would be an IRA with the original owner. So, that means that real question is what fixed period does the fixed period need to cover in order to no longer be included in an RMD calculation? Is it any period, or is it 10 years, for ex. (For some reason I think it's 10 yrs).

Asked slightly differently: If I have my own IRA of $100,000 and I turn 70.5 and I take half and purchase a life annuity, then 1) my annuity payments dont go toward satisfying my RMD on $100,000 and 2) my RMDs are based on the remaining half that is still "in" the IRA. If I purchase a fixed period, rather than life annuity, then the same thing happens. So maybe I have a 15 year fixed period annuity and it's paid over that time and has the same impact on future RMD calcs. But is there a fixed period it must cover? More than 5 yrs, 10yrs to work the same way. Maybe not I supose.

Hope that makes sense - Thanks for the help...
Spirit Rider
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Post by Spirit Rider »

I suggest you ask this on IRAHELP.COM. There are people there very knowledgeable about the nuances of IRAs and annuities.

While there might be a boglehead or two who understand these details, you might as well go to the experts.
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LH2004
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Re: RMDs on inherited IRA

Post by LH2004 »

gassert wrote:If an inherited IRA is inherited a second time then the RMD LE divisor is that of the original benefiary, not the sucessor beneficiary. In order to satisfy the RMD then you would take your account balance divided and there you are. for ex. $100,000 / 20 = $5k first year and so forth. In this case 5%.

The other option would be to take a life annuity if available or buy a SPIA. If you were young enough, then the effective "payout" of the annuity would be something less than 5%. So, you effectively stretch over a longer period. Attractive.
Only if you live longer than expected.
The real question is can a fixed period annuity be used? Even though the question of an inherited IRA starts to complicate things, we have to assume that the fixed period annuity ability to "satisfy" the RMD (by being classified as a "life" annuity) is the same for this as it would be an IRA with the original owner. So, that means that real question is what fixed period does the fixed period need to cover in order to no longer be included in an RMD calculation? Is it any period, or is it 10 years, for ex. (For some reason I think it's 10 yrs).
The rule is, your RMD's have to be taken over either your life or your life expectancy, your choice. A level annuity for a fixed period equal to your life expectancy at the time of the inheritance, or shorter, would be fine. If your initial life expectancy is 20 years, so that you have to take out 5% in the first year, you could instead get an annuity that would pay a level amount for 20 years or less.
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gassert
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Post by gassert »

Only if you live longer than expected.
Well - if i have an inherited inherited IRA and the divisor based on the previous beneficiary owner is 20 - then I need to continue that divisor even if my own life expectancy is 30 or 40. But, if I take a life annuity with the funds, then even if I die very early, the annuity is based on my actual LE (not the original beny), so "we" come out way ahead even if I live average or less. Downside is that by beneficiary (the 3rd in line here) would probbaly not receive any risudual

I don't totally understand your response to my last version of the question. I mean - I do, but only in a beneficiary role, not a sucessor beny role (which is actually the case) becaseu the divisor stays with the original beny, not any subsequent benys.[/quote]
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LH2004
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Post by LH2004 »

gassert wrote:
Only if you live longer than expected.
Well - if i have an inherited inherited IRA and the divisor based on the previous beneficiary owner is 20 - then I need to continue that divisor even if my own life expectancy is 30 or 40. But, if I take a life annuity with the funds, then even if I die very early, the annuity is based on my actual LE (not the original beny), so "we" come out way ahead even if I live average or less. Downside is that by beneficiary (the 3rd in line here) would probbaly not receive any risudual
Ah, I didn't get that you were talking about a double-inherited IRA there. I don't believe that a life annuity on your life would be allowed. If there were 20 years of distribution period left for the first heir when he died, then I believe you have no choice but to empty it out over 20 years; you could not take an annuity that would take longer than that to pay out.

Do you have a reference on the permissibility of a life annuity for a second inheritor?
Topic Author
gassert
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Post by gassert »

No, but I've been "told" by the provider a couple times that it's possible. That's probbaly part of what im looking for too.
tomd37
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Post by tomd37 »

Gassert,

You might consider posting on the www.irahelp.com site. There are a lot of very experienced people (including good lawyers) on that site.
Tom D.
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