Retirement Accounts Archives | Michael Gray, CPA's Blog

A beneficiary who inherited an IRA or 401(k) account before 2022 might be “going with the flow” of taking required minimum distributions according to an original schedule, while smaller required minimum distributions are allowed.

The IRS issued new distribution tables, effective after 2021. Beneficiaries who inherited retirement accounts before 2022 can choose whether to continue receiving annual required minimum distributions under the old schedule based on the old table or to receive distributions based on a new schedule based the new table. The custodian for the retirement account usually will help your set up the distribution schedule, but might not have updated it for the the new IRS tables. (Note there is no penalty for taking distributions that are more than required minimum distributions.)

(Also note this explanation only applies to beneficiaries who aren’t a surviving spouse.)

Beneficiaries who weren’t a surviving spouse of the deceased account participant who died before 2022 generally received “stretch” IRA payments over a remaining life schedule. When the participant died before the required beginning date (April 1 of the year following reaching age 70 1/2 before 2020, or age 72 for participants who reach age 70 1/2 after December 31, 2019 and who reach age 70 1/2 after December 31, 2019 and who reach age 72 before January 1, 2023), the remaining life schedule was determined using the Single Life Table based on the beneficiary’s age reached during the year following the participant’s year of death. When the participant died after the required beginning date, the remaining life schedule was determined using the Single Life Table based on the lower of the participant’s age or the beneficiary’s age for the the year after the participant’s year of death.

Now those beneficiaries can choose to compute their required minimum distribution using the new tables. In order to do it, look up the life expectancy on the new table for the beneficiary’s age for the year after the year of the participant’s death. Then subtract one for each subsequent year.

For example, Jane was deceased during 2018, and would have reached age 72 that year. Her beneficiary, Jill, reached age 63 during 2019. Jill’s life expectancy for 2019 using the new Single Life table was 24.5. Her distribution factor using the new table for 2026 is 24.5 – 7 = 17.5. If the balance of the inherited retirement account on December 31, 2025 was $175,000, the required minimum distribution for 2026 with the new table would be $175,000 / 17.5 = $10,000.

What would Jill’s required minimum distribution be using the old Single Life table? Her life expectancy for 2019 would have been 22.7, so her distribution factor for 2026 would have been 22.7 – 7 = 15.7. The required minimum distribution for 2026 with the old table would be $175,000 / 15.7 = $11,146.50. By electing to use the new table, an additional $1,146.50 remains in the retirement account to continue growing tax deferred.

By the way, when determining the alternative life expectancy for the deceased participant, the distribution factor counts down by one each year starting from the year of death. For example, Jane’s life expectancy for 2018 using the new Single Life table would have been 17.2. The distribution factor for 2026 would have been 17.2 – 8 = 9.2. In this case, the beneficiary, Jill, is younger than the participant, Jane, so Jill’s life expectancy is used.

For more details about required minimum distributions from IRAs and Roth accounts, including rules for surviving spouses and the life expectancy tables effective after 2021 (starting at page 50), see IRS Publication 590-B. https://www.irs.gov/pub/irs-pdf/p590b.pdf

Michael Gray, CPA is the author of How to Use Roth & IRA Accounts to Provide a Secure Retirement, 2025 Edition, available at rothirainvestingbook.com or at Amazon.com.

When my father passed away, I helped my mother rollover his traditional IRA to her own name.

I helped her designate my brother, my two sisters and myself as beneficiaries for the account, by simply listing our names.

Sadly, one of my sisters died from cancer before my mother’s death. No changes were made to the beneficiaries of my mother’s IRA after my sister’s death.

After Mother’s death, I went to her credit union to arrange for distributing the balance of the IRA. I was surprised to learn my deceased sister’s share didn’t go to her children, my two nephews. Since my sister predeceased my mother, her name was simply removed as a beneficiary and her share was divided equally by my mother’s remaining children.

Fortunately, my mother’s revocable living trust had language that preserved the share of my sister’s children for her remaining assets.

My nephews, who were adults, felt fortunate to receive any inheritance from their grandmother, and the balance of the IRA was small, so they weren’t concerned.

Their father, my brother in law, was more sensitive about his sons’ inheritances. I was embarrassed to explain that his sons wouldn’t receive a couple of thousand dollars each from the IRA. He also let the matter go.

For many families, the largest assets in a decedent’s estate are the family residence and the decedent’s retirement accounts. Making beneficiary designations for the retirement accounts is very significant, and most of us don’t consult with an estate planning attorney when making those designations. We just quickly “fill out the forms”.

Since we don’t normally think about our retirement accounts as accessible assets, they can be “invisible” assets that are even neglected by attorneys for estate planning. This is a big mistake. Whenever working on an estate plan with an attorney, remember to include your retirement accounts, including your beneficiary designations.

If my mother had included two little words after my sister’s name, her share of the IRA would have gone to my sister’s children. The words are “per stirpes”.

They are a legal phrase that roughly mean “by right of representation”. For example, for the beneficiary designation “Mary Smith, per stirpes”, if Mary predeceases the IRA owner, her share is divided equally by her children. If Mary and one or more of her children predecease the IRA owner, a deceased child’s share would be divided equally by that child’s children (Mary’s grandchildren via that child). Etc.

My understanding is “per stirpes” isn’t used when naming a spouse as a beneficiary. In that case, children, per stirpes could be named as successor beneficiaries for the contingency of the spouse’s death.

After my experience after Mother’s death, I changed the successor beneficiaries of the retirement accounts for my wife and myself, listing our children, per stirpes, as successor beneficiaries.

I recommend that you consult with an estate planning attorney to create your estate plan, including discussing your retirement accounts. While that’s in process, consider adding “per stirpes” to your beneficiary designations.

Michael Gray, CPA is the co-author of How To Use Roth & IRA Accounts To Provide A Secure Retirement, 2025 Edition. rothirainvestingbook.com

Michael Gray, CPA's Blog

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