Calculating taxes on inherited IRAs from a Trust with multiple beneficaries

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Topic Author
evonboeck
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Calculating taxes on inherited IRAs from a Trust with multiple beneficaries

Post by evonboeck »

Need help calculating taxes for inherited IRA - non spouse beneficiaries:

My dad died on 11/20/2019, pre Secure act. 82 years of age
My brothers and I inherited an IRA from the Trust
I paid the RMD for 2019 prior to moving money to trust account. I distributed the money from a trust IRA account equally to each of my brothers. In 2020 we were not required to take a distribution
We each have our own inherited IRA account

How do I calculate RMD for myself and my brothers? Are the rules based on each of our ages?

Is there a favorite link to a calculator for running the numbers?

Would appreciate any help?
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Lee_WSP
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Re: Calculating taxes on inherited IRAs from a Trust with multiple beneficaries

Post by Lee_WSP »

The 2019 RMD is split amongst you three per the beneficiary designation allocation. Going forward, you each have your own separate inherited IRA.
Topic Author
evonboeck
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Re: Calculating taxes on inherited IRAs from a Trust with multiple beneficaries

Post by evonboeck »

Sorry, maybe I wasn't clear. I already handled 2019 taxes and the money has been distributed into 4 inherited IRAs for each of the four children. My question is how do we calculate RMDS for each of our inherited IRAs? Do we used the oldest life expectancy of oldest child? Do we each use our own age to calculate what the RMD should be?
delamer
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Re: Calculating taxes on inherited IRAs from a Trust with multiple beneficaries

Post by delamer »

This from Vanguard for pre-SECURE Act:

Non-spouse and when spouse is not sole primary beneficiary. An individual non-spouse beneficiary must begin taking RMDs on the basis of his or her own life expectancy by December 31 of the year after the owner's death. Multiple beneficiaries can take RMDs on the basis of their own life expectancies if all of the beneficiaries have established separate accounts by December 31 of the year after the owner's death and starting in that year. If all multiple beneficiaries have not established separate accounts by that December 31 date, all beneficiaries must take RMDs on the basis of the oldest beneficiary's life expectancy starting in the year after the owner's death.

Source: https://investor.vanguard.com/inherit/ira-rmd
One thing that humbles me deeply is to see that human genius has its limits while human stupidity does not. - Alexandre Dumas, fils
Newbie2invest
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Re: Calculating taxes on inherited IRAs from a Trust with multiple beneficaries

Post by Newbie2invest »

The IRS has a table (Table 1) on their website which will explain how much to take out by December 31st. I think it's linked from Section 590. Also, the company holding the trust money can also figure it out for you.
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WoodSpinner
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Re: Calculating taxes on inherited IRAs from a Trust with multiple beneficaries

Post by WoodSpinner »

OP,

I use this calculator for my Inherited IRA RMDs….

https://www.schwab.com/ira/understand-i ... lators/rmd

WoodSpinner
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Big Dog
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Re: Calculating taxes on inherited IRAs from a Trust with multiple beneficaries

Post by Big Dog »

evonboeck wrote: Sat Dec 04, 2021 2:35 pm Sorry, maybe I wasn't clear. I already handled 2019 taxes and the money has been distributed into 4 inherited IRAs for each of the four children. My question is how do we calculate RMDS for each of our inherited IRAs? Do we used the oldest life expectancy of oldest child? Do we each use our own age to calculate what the RMD should be?
your own age. Vanguard -- as I assume do brokerages - will automatically calc it for you if you so choose.
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BL
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Re: Calculating taxes on inherited IRAs from a Trust with multiple beneficaries

Post by BL »

Fidelity has this to say about non-spouse inheritors of IRAs:
"If the account owner died on or before December 31, 2019 you have the ability to take RMDs based on your age using the IRS Single Life Expectancy Table" which is available in the link:
https://www.fidelity.com/building-savin ... d-ira-rmd when you select "non-spouses"

If you want more input, I suggest you change heading substituting RMDs instead of taxes.
MarkNYC
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Re: Calculating taxes on inherited IRAs from a Trust with multiple beneficaries

Post by MarkNYC »

Only an individual can be a designated beneficiary of an IRA. In general, when a trust is the IRA beneficiary there is no designated beneficiary. However, if the trust meets 4 conditions to be a "see-through" trust, then the trust beneficiaries will be deemed designated beneficiaries for the purpose of determining minimum distributions. The 4 conditions are:

1. The trust must be valid under state law
2. The trust must be irrevocable or become irrevocable upon death according to the trust
3. The beneficiary must be identifiable
4. The IRA owner must provide a copy of the trust to the IRA custodian

When individuals are the named beneficiaries of the IRA, they can split the IRA into separate accounts by 12/31 of the year after death and then use each individual's age to determine minimum distributions. But that separate accounts rule is not available when a trust is the IRA beneficiary. So even though the IRA can be split into separate accounts, each individual trust beneficiary must use the age of the oldest beneficiary to determine annual minimum distributions.
(see Treas Reg 1.401(a)(9)-4 Q & A 4 and 5; and 1.401(a)(9) -5)
Alan S.
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Re: Calculating taxes on inherited IRAs from a Trust with multiple beneficaries

Post by Alan S. »

evonboeck wrote: Sat Dec 04, 2021 12:29 pm
I paid the RMD for 2019 prior to moving money to trust account.
This isn't clear. Do you mean that Dad's 2019 RMD was distributed to him before his death?

Upon his death, if the trust was named as the IRA beneficiary, all distributions must be made to the trust until such time that the IRA was distributed out of the trust to inherited IRAs for each trust beneficiary.

Also, note requirement 4 in Mark's post indicating that the trust info must be provided to the IRA custodian by 10/31 of 2020. If this was not done, then the trust fails qualification for look through, and that would change the beneficiary RMD calculation to Dad's remaining LE.
Topic Author
evonboeck
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Re: Calculating taxes on inherited IRAs from a Trust with multiple beneficaries

Post by evonboeck »

Thanks for all the input. I'm sorry that I wasn't clear. Should have used RMDs instead of "taxes" in subject line. Also, the RMD for 2019 was taken against dad's account for 2019 and split amongst the brothers or put in the trust. I don't remember.

The IRA was moved to the trust IRA account and then each of the brothers received their portion and created their own inherited IRA. Actually, as the trustee I created them working with Vanguard. What I didn't understand was how much RMD was required for each of my brothers accounts for 2021 and beyond. From reading the above and Mark's info, I now understand that the RMD for each account is based off the age of the oldest brother. I guess that means each year, I (oldest) have to tell them how much to withdraw. Seems crazy to me, I would think the gov would make us use the youngest age. This works out well for much younger brothers!

Thanks again for taking the time to help me out.
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