Learn about the required minimum distribution rules for various beneficiaries, including spouses, EDBs and NEDBs, and how they impact your loved ones.
Understanding the rules for required minimum distributions (RMDs) is crucial, especially when it comes to different types of beneficiaries. The IRS has specific guidelines that dictate how and when distributions should be made, depending on whether the beneficiary is a spouse, non-spouse eligible designated beneficiary (EDB), or non-eligible designated beneficiary (NEDB).
This update provides a detailed overview of these rules to help you navigate the complexities of RMDs.
FAQs
Q1: What happens if my beneficiary is not an eligible designated beneficiary (NEDB) and I die before my required beginning date (RBD)?
A1: If you die before your required beginning date and your beneficiary is a NEDB, no distributions are required during the first nine years after your death. However, the entire account must be distributed in the 10th year.
Q2: How are required minimum distributions handled if I die on or after my RBD and my beneficiary is a NEDB?
A2: In this case, annual distributions based on the remaining life expectancy are required for the first nine years after your death. The remainder of the account must be distributed in the 10th year. The calculation is based on the greater of your remaining life expectancy or that of the beneficiary.
Q3: What are the required minimum distribution rules for a non-spouse eligible designated beneficiary (EDB)?
A3: If you die before your required beginning date , required annual distributions will be based on the eligible designated beneficiary’s remaining life expectancy. If you die on or after your required beginning date , distributions will be based on the greater of your remaining life expectancy or the beneficiary’s life expectancy. After the beneficiary dies or a minor beneficiary turns 21, distributions continue for nine years, with the entire account distributed in the 10th year.
The Impact Of The Secure Act On Required Minimum Distribution Basics
The Setting Every Community Up for Retirement Enhancement Act of 2019 (SECURE Act) changed the rules for taking distributions from retirement accounts inherited after 2019. The so-called “10-year rule” generally requires inherited accounts to be emptied within 10 years of the original owner’s death, with some exceptions.
In 2022, the IRS issued proposed regulations that interpreted the revised required minimum distribution (RMD) rules. Final regulations have now been issued and are generally applicable starting in 2025.
They basically adopt the proposed regulations, while reflecting some changes made by the SECURE 2.0 Act of 2022 and including certain changes in response to comments received on the proposed regulations.
What If My Designated Beneficiary Is Not An Eligible Designated Beneficiary?
If you die before your required beginning date, no distributions are required during the first nine years after your death, but the entire account must be distributed in the 10th year.
If you die on or after your required beginning date , annual distributions based on remaining life expectancy are required in the first nine years after the year of your death, then the remainder of the account must be distributed in the 10th year.
Annual distributions after your death will be based on the greater of:
- what would have been your remaining life expectancy, or
- the beneficiary’s remaining life expectancy.
What If My Beneficiary Is A Non-Spouse Eligible Designated Beneficiary?
After your death, annual distributions will be required based on remaining life expectancy.
If you die before your required beginning date , required annual distributions will be based on the eligible designated beneficiary’s remaining life expectancy.
If you die on or after your required beginning date, annual distributions after your death will be based on the greater of:
- what would have been your remaining life expectancy, or
- the beneficiary’s remaining life expectancy.
After your beneficiary dies or your beneficiary who is your minor child turns age 21, annual distributions based on remaining life expectancy must continue during the first nine years after the year of such an event. The entire account must be fully distributed in the 10th year.
What If Your Designated Beneficiary Is Your Spouse?
There are many special rules if your spouse is your designated beneficiary.
But the 10-year rule generally has no effect until after the death of your spouse, or possibly until after the death of your spouse’s designated beneficiary.
What Life Expectancy Is Used To Determine Minimal Required Distribution After You Die?
Annual required distributions based on life expectancy are generally calculated each year by dividing the account balance as of December 31 of the previous year by the applicable denominator for the current year (but the required minimum distribution will never exceed the entire account balance on the date of the distribution).
When your life expectancy is used, the applicable denominator is your life expectancy in the calendar year of your death, reduced by one for each subsequent year.
When the non-spouse beneficiary’s life expectancy is used, the applicable denominator is that beneficiary’s life expectancy in the year following the calendar year of your death, reduced by one for each subsequent year.
If the applicable denominator is reduced to zero in any year using this “subtract one” method, the entire account would need to be distributed.
And at the end of the appropriate 10-year period, any remaining balance must be distributed.
Navigating the rules for required minimum distributions can be complex, particularly when different types of beneficiaries are involved. Understanding these distinctions ensures compliance with IRS regulations and helps in effective retirement planning. By knowing the specific rules for non-eligible designated beneficiaries, non-spouse EDBs, and spouses, you can better manage your retirement accounts and distributions.
Contact your tax and financial advisors to determine the best moves for your situation.