CALCULATING THE REQUIRED MINIMUM  DISTRIBUTION FOR ANY INHERITED IRA BENEFICIARY

FACTS 

Thelma dies and names John (non-spouse) as beneficiary on her IRA beneficiary form.  A new account is created for John titled "Thelma Inherited IRA for the benefit of John".  John names Linda as beneficiary of the "Thelma Inherited IRA for the benefit of John".  Some years later John dies.  What happens?

Any remaining assets held in the "Thelma Inherited IRA for the benefit of John" should now be re-titled something like “Thelma, deceased, IRA for the benefit of Linda, successor beneficiary of John."

CALCULATING THE REQUIRED MINIMUM DISTRIBUTION (RMDs)

The RMD calculation cannot be reset when a successor beneficiary inherits an inherited IRA. They succeed to the original beneficiary’s inherited IRA. Linda cannot use her own age to calculate RMDs on the IRA that originally belonged to Thelma. When John inherited, his life expectancy factor was determined by the age he turned in the year after Thelma’s death.  He finds this factor on the Single Life Expectancy Table (Internal Revenue Service, Supplement to Publication 590, Table 1, Single Life Expectancy Table).  John was 69 in the year after Thelma’s death.  His life expectancy factor would be 17.8. That factor gets reduced by one each year until the inherited account is emptied, no matter who might later become a successor beneficiary of the inherited IRA.

When Linda inherits the IRA, she simply picks up the life expectancy factor where John leaves off.  If he started at 17.8 two years later the factor is down to 15.8. The RMD for the second year will be based on a factor of 15.8 whether John or Linda takes the RMD. Linda’s factor for the 3rd year will be 14.8 and she will continue to reduce the factor by one each year.

Linda should name her own beneficiary in case she dies before she empties the inherited IRA account.