Calculate the Required Minimum Distribution (RMD) for an inherited IRA

The calculation of the Required Minimum Distribution (RMD) for an inherited Individual Retirement Account (IRA) depends on several factors, including the type of beneficiary, the age of the original account owner at the time of death, and whether the account owner had started taking RMDs before death.

If the original IRA owner died before reaching the required beginning date for RMDs, the beneficiary has two options under Subsection 401(a)(9)(B)(ii) and (iii): the entire account can be distributed within five years of the owner's death (the 5-year rule), or distributions can begin no later than one year after the owner's death and be spread out over the life or life expectancy of the beneficiary. However, Subsection 401(a)(9)(H)(i) modifies this rule by substituting "10 years" for "5 years" for beneficiaries who are not eligible designated beneficiaries.

An eligible designated beneficiary, as defined in Subsection 401(a)(9)(E)(ii), includes the surviving spouse of the employee, a child of the employee who has not reached majority, a disabled or chronically ill individual, or an individual not more than 10 years younger than the employee. For these beneficiaries, Subsection 401(a)(9)(H)(ii) and (iii) provide an exception to the 10-year rule, allowing them to take distributions over their life expectancy. However, if an eligible designated beneficiary dies before the entire interest is distributed, the remainder must be distributed within 10 years after the death of the eligible designated beneficiary.

If the original IRA owner died after reaching the required beginning date for RMDs, the remaining portion of the interest will be distributed at least as rapidly as under the method of distributions being used at the time of the owner's death, as per Subsection 401(a)(9)(B)(i).

For surviving spouses who are the sole beneficiary, they have the option to treat the IRA as their own, as stated in Publication 590. This means they can continue making contributions to the IRA and take distributions over their life expectancy or the life expectancy of the deceased IRA owner, whichever is longer.

For non-spouse beneficiaries, they generally must begin taking RMDs from the inherited IRA by December 31 of the year following the year of the IRA owner's death. The RMDs are based on the beneficiary's life expectancy as determined in the year following the year of the owner's death.

To calculate the RMD, the account balance as of the end of the previous year is divided by the distribution period (life expectancy) from the IRS's Single Life Expectancy Table (Table I), as per IRS FAQ. If there is more than one IRA, the RMDs must be calculated separately for each IRA, but the total can be taken from any one or more of the IRAs.In conclusion, to calculate the RMD for an inherited IRA, you need to consider the type of beneficiary, the age of the original account owner at the time of death, and whether the account owner had started taking RMDs before death. The RMD is calculated by dividing the account balance as of the end of the previous year by the distribution period (life expectancy) from the IRS's Single Life Expectancy Table.

Sources:

PLR 200717023

PLR 201318033

Publication 590-B (2022)

Publication 590

T.D. 8987

§ 1.408-8. Distribution requirements for individual retirement plans.

https://www.irs.gov/faqs/other

Notice 2022-53

Publication 1380

§ 401. Qualified pension, profit-sharing, and stock bonus plans