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Retirement > 401(k)s & IRAs
Top rules for inherited money
November 8, 2000: 9:49 a.m. ET

IRA beneficiaries can save by clearing the confusion about withdrawal rules
By Ed Slott
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NEW YORK (CNNfn) - There is a widespread misunderstanding of the basic IRA withdrawal rules for inherited IRAs. This confusion is costing beneficiaries a fortune in lost tax deferral.

Apparently many IRA beneficiaries have withdrawn much more from their inherited IRAs than they had to. Some beneficiaries missed out on decades of tax deferral.

The issues, in IRA talk, are known as "stretch IRAs" and the "At Least As Rapidly Rule."

A stretch IRA is where a non-spouse IRA beneficiary (a child, for example) can "stretch" distributions of his inherited IRA over the remaining joint life of the child and the IRA owner, gaining 30, 40 years or more of tax deferral from the inherited IRA.

graphicWith proper planning, a non-spouse IRA beneficiary can stretch distributions from his inherited IRA, even if the IRA owner lives past his Required Beginning Date (RBD). The RBD is April 1 of the year after you turn 70-1/2.

Many are confused by the "At Least As Rapidly" rule, thinking it means that the child beneficiary is stuck with the parent's (the IRA owner's) remaining single life and cannot stretch out inherited IRA distributions.

The fact is the "At Least As Rapidly Rule" does not negate a stretchout for non-spouse beneficiaries and does not apply at all to spouses who are IRA beneficiaries.  

When the IRA rules state that if you are a non-spouse IRA beneficiary, you must withdraw from your inherited IRA, "at least as rapidly as under the method being used at the owner's death," it does not mean that the child/beneficiary is stuck with the IRA owner's remaining life.


Visit Ed Slott's irahelp.com


First, the "At Least As Rapidly" rule does not apply to a spouse who rolls over the IRA or elects to treat it as her own. It does apply to a spouse who does not elect to treat the IRA as her own, and instead chooses to be a beneficiary. In this case, the spouse follows the non-spouse beneficiary rules that apply when the IRA owner dies on or after his RBD.

What the "At Least as Rapidly" rule means is that a non-spouse IRA beneficiary cannot lengthen the distribution schedule in order to defer required distributions over a longer time than was originally elected by the IRA owner at his RBD. That's all it means.

Minimum Distribution Incidental Benefit

The confusion lies in a third IRA term, the Minimum Distribution Incidental Benefit rule, commonly known as the 10-year rule, which applies only when you have a non-spouse beneficiary who is more than 10 years younger than you, the IRA owner. This rule is in place to prevent the IRA owner from stretching lifetime IRA distributions out too long by using a younger non-spouse beneficiary.

This rule never applies to a spouse. It applies only for lifetime distributions. After the death of the IRA owner, there is no more minimum distribution rule and the child/beneficiary can then go back to the distribution schedule based on the remaining joint life expectancy.

For example, let's say at the RBD an IRA owner is 70 and the child/beneficiary is 40.

The joint life expectancy of a 70- and 40-year-old is 42.9 years, but because the beneficiary is a non-spouse, the lifetime required distributions will be based on the 10-year rule table, which will assume the beneficiary is not 40 years old, but instead, 60 years old. This life expectancy factor will be 26.2 years and not the 42.9-figure.

But when the IRA owner dies, the 10-year rule disappears and the child goes back to the original term, less the number of years distributions were required by the IRA owner. In this example, after the death of the IRA owner, the child would revert back to the original 42.9-year joint life expectancy, less the number of years the IRA owner took distributions after age 70 1/2 .

Even though the 42.9 years is longer than the life expectancy factor for the 10-year rule, the at least as rapidly rule has not been violated, because the child/beneficiary is withdrawing at least as rapidly as under the method being used at the IRA owner's death.


Read Ed Slott's columns on the three most important decisions you'll make with your IRA: Choosing a beneficiary, picking a life expectancy and picking a distribution method.


The distribution method in effect at the IRA owner's death is based on the actual ages of the IRA owner and the beneficiary, not on the 10-year rule calculation.

The fact that the 10-year rule applied for lifetime distributions has no effect on the "At Least As Rapidly" rule.

Non-spouse IRA beneficiaries should not be withdrawing more than they have to because of the "At Least As Rapidly" rule. The stretchout is still available even if the IRA owner dies after his RBD, since the stretchout does not violate the at least as rapidly rule. Beneficiaries still must be named before the RBD for the stretchout to apply.    graphic

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Most stock quote data provided by BATS. Market indices are shown in real time, except for the DJIA, which is delayed by two minutes. All times are ET. Disclaimer. Morningstar: © 2018 Morningstar, Inc. All Rights Reserved. Factset: FactSet Research Systems Inc. 2018. All rights reserved. Chicago Mercantile Association: Certain market data is the property of Chicago Mercantile Exchange Inc. and its licensors. All rights reserved. Dow Jones: The Dow Jones branded indices are proprietary to and are calculated, distributed and marketed by DJI Opco, a subsidiary of S&P Dow Jones Indices LLC and have been licensed for use to S&P Opco, LLC and CNN. Standard & Poor's and S&P are registered trademarks of Standard & Poor's Financial Services LLC and Dow Jones is a registered trademark of Dow Jones Trademark Holdings LLC. All content of the Dow Jones branded indices © S&P Dow Jones Indices LLC 2018 and/or its affiliates.