Inherited IRA

Archive for February, 2008

New Rules for Inherited IRA � An Example

The new rules for Inherited IRA finalized in 2002 brought in many changes about Inherited IRA accounts. Below is an example of how the new rules for Inherited IRA work in practice: 

An IRA owner age 72 died in 1994 and the primary IRA beneficiaries were three children. 

The IRA owner had begun taking Required Minimum Distribution (RMD) based on his/her own single Life Expectancy, non-recalculating. 

Non-recalculation means that the Life Expectancy factor is reduced by “one” each year. 

Using the old Single Life Expectancy Table the factor for age 72, single non-recalculating would have been 14.0, the beneficiaries did not split the IRA into sub-accounts and continued the original schedule. 

In year 2002 the Life Expectancy would be reduced to 6.0: 

14.0 – 8 (# of years since the year of death in 1994) = 6.0 

In 1995, the year following the year of death, the oldest IRA Beneficiary was age 45. 

From the new Single Life Expectancy Table the factor for age 45 is 38.8; using non-recalculation we reduce the 38.8 factor by “one” for each of the 7 years since 1995 to a factor of 31.8. 

The beneficiaries now have an additional 25.8 years to take distributions: 

31.8 – 6.0 = 25.8 

Using an IRA balance of $50,000 the change in the amount of the Required Death Distribution is greatly reduced: 

$50,000 / 6.6 = $7,575.75 

but using the new rules the amount is $1,572.32: 

$50,000 / 31.8 = $1,572.32 

IRA owner age 72 dies in 1994, using Single Life Expectancy, Non-Recalculating Oldest Non-Spouse Primary IRA Beneficiary Age in 1994 is 44.

Age	Factor	Year	Age	Factor
70	16.0	1992
71	15.0	1993
72	14.0	1994	44
	13.0	1995	45	38.8
	12.0	1996	46	37.8
	11.0	1997	47	36.8
	10.0	1998	48	35.8
	9.0	1999	49	34.8
	8.0	2000	50	33.8
	7.0	2001	51	32.8
	6.0	2002	52	31.8