Calculating an RMD from an inherited IRA

Factual Questions
1

I have an inherited IRA, and due to recent IRS rule changes, this is the first year that a required minimum distribution (RMD) will actually be required. There are calculators out there hosted by various investment institutions, like this one:

All of the ones I tried come up with the same number for this year’s RMD, but out of curiosity I tried calculating it myself, and I can’t match that result. If you work through Schwab’s calculator, the result page says my RMD for this year is the account balance divided by 31.4, and includes the following note:

There’s an info bubble next to that value (31.4) which says:

The distribution period (the divisor) is the maximum number of years over which a beneficiary is allowed to take life expectancy payments from an inherited IRA. The distribution period for beneficiary life expectancy payments are obtained from the Single Life Expectancy table.

A link below that shows you the Single Life Expectancy Table, which is just this table from the IRS. The thing I’m struggling with is that the number 31.4 doesn’t show up on that table. That number is somewhere between the numbers for ages 55 and 56, and I’m definitely not that old yet.

I can’t find a clear explanation from any of these calculators regarding how they come up with a number for me that’s not actually on that table. Anyone got a clue? I’m willing to trust these calculators - I just want to understand how they work.

2

The rules change depending on how old the prior owner was when they died and also on your relationship to that prior owner.

The Single Life table is only applicable to some situations, not every situation.

Any calculator that did not ask about the age of the prior owner at death and your relationship to them is making assumptions that may not fit your facts.

3

The calculators I’ve seen (including the Schwab one I linked to) are asking those questions:

  • original owners date of birth and date of death
  • my date of birth
  • account type
  • beneficiary type

so I think they have all the info required, and aren’t making assumptions.

4

rules are set out pretty clearly here

5

OK, so I’m looking at the top row (IRA owner dies on/after required beginning date), and the second column (I’m a non-spouse beneficiary):

Distribute using Table I

  • Use younger of 1) beneficiary’s age or 2) owner’s age at birthday in year of death
  • Determine beneficiary’s age at year-end following year of owner’s death
  • Use oldest age of multiple beneficiaries
  • Reduce beginning life expectancy by 1 for each subsequent year
  • Can take owner’s RMD for year of death

So for the first bullet, I’d be using my age at birthday in year of [owner’s] death.

For the second bullet, why are they asking me to determine my age at year-end following the year of the owner’s death, instead of “at birthday in year of death”? The change of wording makes me wonder if it’s supposed to be different. Does it mean I’m supposed to calculate my age at the end of that year (and subsequent years) down to several decimal points? If I do that, and then interpolate in the table, I get a different result that still doesn’t match what the online calculators give.

…

OK, I studied a bit more and I think I see how the online calculators are arriving at their result. They’re taking my age at year-end following the year of the original owner’s death, and using that to look up life expectancy from Table 1 at that point. Once that’s done, the table never gets referenced again: in each subsequent year, I just subtract 1 from the life expectancy I used for the previous year.

So for the calendar year after the owner’s death, I find my life expectancy LE from that table, and my RMD for that year is (1/LE) * (the account balance at the beginning of the year).

For the second calendar year, instead of 1/LE, the multiplier is 1/(LE-1).

For the third year, the multiplier is 1/(LE-2). And so on.

If I supply the online calculators with a different birth year for myself, I get results that are consistent with what I just laid out.

6

I think you’ve got it, though be aware the LE tables do get modified, as they did in 2022.

7

Thanks for posting this thread and the links!
My mother had an IRA before she passed away at the end of the year. Dad is still alive, but has some other issues, so we opted to have a trust inherit the IRA. I’ve been meaning to look up the RMD scenarios there.

(Our financial advisor is really doing the research, but now I have an idea of what to expect.)

8

You might want to revisit this decision. As I understand it, a trust only has 5 years to draw down the IRA, whereas other beneficiaries have 10 years. That, combined with the higher trust taxes, may mean the beneficiaries might be better off getting inherited IRAs. Worth at least taking a second look.

9

Missed the edit window. Are you talking about the trust inheriting your mother’s IRA (sounds like a done deal), or the trust inheriting your father’s IRA in the future?

10

The trust inherited Mom’s IRA. It’s a done deal. We did have our estate attorney and financial planer involved in the decision process.

I believe that the draw-down rules changed in 2019, and we have 10 years. But we’re willing to deal with a smaller window if we have to, as an expense associated with protecting Dad from himself.

Which all reminds me…I do need to find an accountant to handle taxes this year. I’ve always done my own, and Mom handled theirs. I don’t believe I’ll be able to handle the estate and Dad’s set up…probably should start that search now. I’ll ask my financial guy if he has a reference.