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The “Default” Default Distribution Period

default distribution of antlers is uniform, not quite like the default distribution of an inherited IRAWhat 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? What is the default distribution period when there is no lifetime or age to determine the distribution period of an inherited IRA?

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.

A few more details beyond the numbers?  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 of Default Distribution Periods

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 about that one time at band camp… :-)  Following are the details of these two answers, in reverse order (yeah, thought I’d rock your world!).

Original Owner Died After Required Beginning Date

First lets review RBD:  an IRA owner’s Required Beginning Date (RBD) is defined as April 1 of the year following the year in which the IRA owner reaches age 70½.  So, if you reach 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, 2017, then you would have an RBD of April 1, 2019.

Therefore, 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 expectancy of the original owner.  At age 71 (which is the youngest age an IRA owner can be during the year of RBD) the life expectancy table indicates an expected lifespan of 16.3 more years.  Since the distributions must begin (at the latest) during the year after the IRA owner’s passing, the life expectancy would be reduced by 1, resulting in a default distribution period of 15.3 years.  The beneficiary(s) would be determined by an external will, trust, or the courts, since there is no valid named beneficiary on the custodial documents of the IRA.

Original Owner Died Before Required Beginning Date

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. This is the Internal Revenue Code-prescribed length of time that an IRA must be distributed when no primary beneficiary is designated.

But, 5 years from when? Since the first distribution must occur in the year following the year of the original owner’s passing, the account must be distributed by the end of the fifth year after the owner’s death.

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