We’ve talked about all kinds of issues surrounding distribution periods, but there’s at least one more facet of distribution periods that we have not addressed just yet. What happens when there is no designated beneficiary for the IRA account? More specifically, what is the longest distribution period that heirs are allowed to stretch an IRA when there is no designated beneficiary?
As with most questions put forth to the IRS, there’s more than one answer. So, here are the answers: 5 or 15.3. If you’re the bottom-line type, you can quit reading now.
Oh, right: the answer is 5 years if the IRA owner died prior to his Required Beginning Date (RBD), which is April 1 of the year following the year in which he becomes age 70½, regardless of whether or not a distribution has already been taken. The answer is 15.3 years if the IRA owner died on or after his RBD. Okay, now you bottom-liners can go do something else.
The Messy Details
If you’ve stuck around you must be really short on things to do or terribly interested in the nuances of tax law. In either case, I’m sure we can get together sometime and swap stories of band camp… :-) Following are the details of these two answers, in reverse order (yeah, that’ll rock your world!).
After RBD
So, first lets review RBD: an IRA owner’s Required Beginning Date is defined as April 1 of the year following the year in which the IRA owner reaches age 70½. So, if you turn age 70 on or before June 30 of any particular year, your RBD will be April 1 of the following year. If you are first able to refer to yourself as a septuagenarian on or after July 1 of any particular year, your RBD will not occur until April 1 of the second calendar year in the future. For example, if your 70th birthday arrived on July 3, 2009, then you would have an RBD of April 1, 2011.
So, if the owner of an IRA dies after his or her RBD and there is no designated beneficiary for the account, the rules state that the IRA can be paid out to the heirs or estate over the remaining life expectency of the original owner. At age 71 (which is the youngest age an IRA owner can be during the year of RBD) the life expectency table indicates a life expectency of 16.3 years. Since the distributions must begin the year after the IRA owner’s passing, the life expectency would be reduced by 1, resulting in a payout period of 15.3 years. The beneficiary(s) would be determined by an external will, trust, or the courts.
Before RBD
If the IRA owner passed away prior to RBD and there is no designated beneficiary for the account, then the default distribution period is always 5 years.
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I can learn from you, you can learn from me - please leave your comments and links!Jim Blankenship, CFP®, EA, is an expert in personal retirement, IRAs, and tax issues, with more than 25 years of experience in the industry. Read more from this author
And if you've come here to learn about queuing waterfowl, I apologize for the confusion. You may want to discuss your question with Lester, my loyal watchduck and self-proclaimed "advisor's advisor".