RMD rules for beneficiary IRAs

December 30, 2014 by Chris Rubino
people examining retirement portfolios and graphs

You inherited a retirement account, and you opted to transfer the assets into a beneficiary or inherited IRA. What now? The “what now” depends on whether RMDs were already being taken by the deceased benefactor (also known as a “decedent”), your relationship to him or her, your age, and the decisions you make. And any distributions from beneficiary IRAs must be done according to Required Minimum Distribution (RMD) rules.

Generally, your financial institution will calculate the RMDs for you if you ask them to do so, but you remain responsible for the correct calculation. Failure to take the RMDs will result in a 50% tax penalty on any amount not taken that you should have. In the case of an inherited IRA, the amount of RMD is calculated using the IRS’s “Single Life Expectancy Table” found in IRS Publication 590.

If the decedent died prior to being required to take RMDs from the original account, and you were a spouse designated as the sole beneficiary and you did not elect to treat the account as your own, you can:


  • Elect to not take any RMDs, but you must then empty the account (take the entire balance) by the end of the 5th year following the year of death (this election must be made by December 31st of the year your first RMD would have been required), or

  • Use your current age each year to determine the RMD, but you do not have to take distributions until the deceased would have been 70 ½.

If you are a non-spouse beneficiary of an account or the surviving spouse and not the sole beneficiary of the account, and the decedent died prior to being required to take RMDs, you can:

  • Elect to not take any RMDs, but you must then empty the account (take the entire balance) by the end of the 5th year following the year of death (this election must be made by December 31st of the year your first RMD would have been required), or

  • Use your age at the end of the year following the year of death of the decedent to determine the RMDs. This calculation must be done each year, reducing your beginning life expectancy by one year for each subsequent passing year.

Whether you are a spousal beneficiary or a non-spouse beneficiary, in the year of the death of the person who left you the account you are required to take any RMD they would have been required to take if they had still been living. Subsequent RMDs are calculated as follows:

If the individual passed away on or after the date he or she was required to begin RMDs, and you are the sole beneficiary surviving spouse not electing to treat the account as your own, you can either use your current age each year to calculate your RMD or use the deceased’s life expectancy, reduced by one year for each passing year subsequent to the date of death.

If you are the sole non-spouse beneficiary of an account and the individual passed away on or after the date he or she was required to begin RMDs, then RMDs are calculated based on your life expectancy if you were younger than the deceased on the date of passing or on the deceased’s life expectancy if he or she was younger.

If you are one of multiple beneficiaries, either as a non-spouse beneficiary or a surviving spouse who was not the sole beneficiary, then the RMDs may depend on whether the separate beneficiary IRA accounts were established before the end of the year following the year the individual passed. If they were, you can calculate the RMDs as if you were the sole beneficiary. If the separate accounts were not established by this date, then the RMDs are calculated based on the life expectancy of the eldest if the eldest beneficiary was younger than the deceased, or based on the deceased’s life expectancy if the deceased was younger than the eldest beneficiary on the date of passing.

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