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May 28, 2021

Must I use the 5-year rule for my inherited IRA? I inherited it from my 72 year old uncle.

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Must I use the 5-year rule for my inherited IRA? I inherited it from my 72 year old uncle.

I inherited a traditional IRA from my uncle in March of this year. He was age 72 when he died. I was told that I am required to take distributions from the inherited IRA under the 5-year rule. Is this true?

Must I use the 5-year rule for my inherited IRA?

You cannot be subject to the 5-year rule for an account that you inherited after 2019, unless you are a non-designated beneficiary.  To determine your distribution options, you must first determine whether you are a non-designated beneficiary, a designated beneficiary, or an eligible designated beneficiary.

Key Factor

Because your uncle was age 72 this year and died this year, he died before he was supposed to start taking required minimum distributions (RMD). The date by which someone is supposed to start taking RMDs from an IRA is April 1 of the year following the year the IRA owner reaches age 72. This is referred to as the required beginning date(RBD). Therefore, if someone dies before April 1 of the year that follows the year he/she reaches (or would have reached) age 72, he/she died before the RBD.

You are therefore subject to the rules that apply when someone dies before the RBD.

Are you a Non-Designated beneficiary ?

A non-designated beneficiary is a beneficiary that is not a designated beneficiary. A non-designated is a non-person and includes an estate, charity or corporation.

If you inherit a retirement account through an estate (the estate is the named beneficiary and you inherit the retirements account assets through the estate),  the distribution options are those that apply to a non-designated beneficiary.

For a retirement account inherited after 2019, the 5-year rule would apply only if the account was inherited by a beneficiary that is not a designated beneficiary and the account owner died before the required beginning date (RBD). A beneficiary that is not a designated beneficiary is commonly referred to as a non-designated beneficiary.

September 30th  determination: The determination of whether an account is inherited by a non-designated beneficiary is made on September 30, of the year that follows the year in which the retirement account owner dies. If there are multiple beneficiaries one of which is a non-designated beneficiary, the account is treated as have a beneficiary that is a non-designated beneficiary, if there are nay non-designated beneficiary that did not fully distribute its share before September 30 of the year that follows the year in which the retirement account owner dies.

Are you a Designated Beneficiary?

You are a designated beneficiary is are not a non-designated beneficiary (see above).

If you are a designated beneficiary, you are subject to the 10-year rule . Under the 10-year rule, distributions are optional until December 31 of the 10th year that follows the year in which the retirement account dies, at which time the entire account balanced must be distributed from the account.

Are you an eligible designated beneficiary

You are an eligible designated beneficiary if you are either of the following

  • Disabled,
  • Chronically ill, or
  • Not more than 10-years younger than your uncle

( There are other  categories for eligible designated beneficiaries, but those do not apply to you)

If you are an eligible designated beneficiary, you may take distributions under the 10-year rule or the life-expectancy rule. In this case, you might be required to make an election by choosing one of the two, by December 31 of the year that follows the year in which the account owner died.

Written By

Denise Appleby

Denise is CEO of Appleby Retirement Consulting Inc., a firm that provides IRA resources for financial/ tax/legal professionals. She has over 20 years of experience in the retirement plans field, which includes training and technical consultation.

Denise writes and publishes educational /marketing tools for advisors; available at http://irapublications.com. Denise co-authored several books on IRAs

Denise is a graduate of The John Marshall Law School, where she obtained a Masters of Jurisprudence in Employee Benefits, and has earned 5 professional retirement designations.
She has appeared on numerous media programs, sharing her insights on retirement tax laws.

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