IRA’s and beneficiaries

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L1: IRA’s and beneficiariesIf a spouse was primary beneficiary of the IRA, and after owner spouse passed on, the surviving spouse put IRA in their name, and then named their 4 children as equal beneficiaries of the IRA, when 2nd spouse passes do each of the 4 children have to take an RMD using the value from the beneficiary calculator on this site, or is the RMD (using age of oldest) divided amongst them each year?
I ran a scenario, with the “beneficiary calculator” on this site, and it gave me a hypothetical $35,000 for the RMD of the child, (beneficiary of the 1st beneficiary, who I classified as spousal rollover) so I am wondering if that means $140,000 total RMD in one year for the 4 children after 2nd spouse passes in this example, if 4 children of similar age are the beneficiaries, or if that $35K is divided by the 4 beneficiaries using age of oldest. If the larger #is the answer, the money does not last very long.
Is there a difference (in the eventual computation of the Children’s RMD) if a trust is the beneficary of the surviving spouse’s IRAs, with the 4 children as the beneficiares of that trust?
Just trying to figure this out. Thanks.
Ken2011-04-27 16:23, By: Ken, IP: []

L2: IRA’s and beneficiariesInherited IRAs is a complex area. There is a difference for spousal beneficiaries vs non-spousal (children) beneficiaries.
The RMD is a total amount divided by the number of beneficiaries. If the IRA is significant, it usually makes sense to divide the IRA into separate accounts for each child, because often they have different needs and investment philosophies. It is not necessary to divide the IRA into separate ones during the taxpayer’s lifetime, and this can be done up until 9/30 of the year following the year of death.
In the year of death, if the taxpayer did not take an RMD (assuming he was 70 1/2), then the beneficiaries must take one for the year of death before anything else is done with the account.
Trusts are treated the same as for the underlying beneficiaries.
Beyond these basics, I suggest that you get the IRS pub on retirement paln distributions, or check J K Lasser “YOUR INCOME TAX”, or the Quickfinder handbook, or similar tax reference. Of course, the best approach is to meet with your tax accountant or finaancial advisor, and do retirement and estate planning.
This website is really not the place for extensive discussions on the aspect of INHERITED IRAs.2011-04-27 17:46, By: dlzallestaxes, IP: []

L2: IRA’s and beneficiariesKen,
Scenario 1: No trust, just 4 individual beneficiaries.
In this case, the 4 children would create separate accounts no later then 12/31 of the year following death of the surviving spouse IRA owner. That would enable each of them to calculate their RMD using their own life expectancy starting in the year following surviving spouse’s death as well as having full control over their respective inherited IRA. Only their own share account balance is used to calculate their individual RMD, the RMD would not larger in total because of multiple beneficiaries.
Scenario 2: Qualified trust named as beneficiary with children as the trust beneficiaries
This can take on several variations because of the flexibility of trust provisions. But in the basic form where the trust is considered qualified per the requirements on p 38 of Pub 590, the oldest beneficiary of the trust will determine the RMDs. Separate account rules do not apply to trusts, therefore the youngest beneficiaries will lose some stretching capacity. It is better to avoid a trust unless a particular child has spendthrift problems, cannot handle money and would take out too much too soon, or is subject to creditor issues including a spousal settlement. If these issues applied to one child only, it would be best to partition the IRA and leave that child’s share to a trust and for the other 75% of the IRA just name the other children individually on that IRA.2011-04-27 18:00, By: Alan S., IP: []

L3: IRA’s and beneficiariesIf they are all minor children, or need “spendthrift” protection, then you can have separate trusts for each applicable child, and no trust for any older or more “trustworthy” child.2011-04-27 18:06, By: dlzallestaxes, IP: []