ComplianceTax & AccountingAugust 12, 2019

IRA beneficiary options: what you need to know


The required minimum distribution (RMD) rules applicable to individual retirement accounts (IRAs) are written in two parts, including distributions before an IRA owner’s death (i.e., RMDs for owners of traditional IRAs), and distributions after an IRA owner’s death [i.e., RMDs for beneficiaries of traditional, simplified employee pension (SEP), Savings Incentive Match Plan for Employees of Small Employers (SIMPLE), and Roth IRAs]. The distribution options available to a beneficiary after an IRA owner dies depend on several variables including the type of IRA that is inherited, whether a beneficiary is an individual (i.e., a living person) or a nonindividual, the language in the decedent’s IRA plan agreement, and potentially state law.

After an IRA custodian/trustee has been notified of an IRA owner’s death and has obtained acceptable certification of death, it is the custodian/trustee’s responsibility to ensure that all aspects of properly administering an inherited IRA are followed. Additionally, an IRA custodian/trustee may assist a beneficiary in determining the available distribution options which potentially include taking a lump sum death distribution; the five-year rule; distributing one’s share using single life expectancy; or the unique option for a spouse to treat the decedent’s IRA as his/her own IRA.

Five-year rule

The five-year rule is an available option for a beneficiary only when an IRA owner passes away before his/her required beginning date or RBD (i.e., April 1 of the year after attainment of age 70½). Roth IRA owners, regardless of age at the time of death, are always considered to have died before the RBD. If elected, the five-year rule requires the beneficiary’s entire inherited share of an IRA be distributed by December 31 of the year containing the fifth anniversary of the IRA owner’s death. Distributions in any amount and at any time can be taken during the five-year period.


Suzy passed away in 2019 at age 47 and her daughter, Jill, is the beneficiary of her IRA. If Jill elects the five-year rule, the IRA must be depleted by December 31, 2024. Distributions of any amount can be made any time during the five-year period.

Single life expectancy

The single life expectancy distribution method is generally always an option for individuals and requires a beneficiary to take a required death distribution (i.e., RMD) each year. Distributions are determined by using the “designated” beneficiary’s single life expectancy from the Single Life Expectancy Table. To determine a beneficiary’s annual RMD amount you simply take the prior year-end balance (including adjustments when applicable) and divide it by the applicable single life expectancy divisor. In the case of a nonspouse beneficiary, the single life expectancy divisor is based on the beneficiary’s age as of the year after the IRA owner’s death.

Designated beneficiary

As indicated above, the “designated” beneficiary is the individual whose life expectancy is used to calculate RMDs under the single life expectancy method. However, an IRA owner may name a beneficiary that does not have a life expectancy, such as his/her estate or a charitable organization. A beneficiary without a life expectancy cannot be considered a “designated” beneficiary since distributions cannot be determined using a life expectancy divisor. Only an individual, or a qualified trust with an individual beneficiary(s), can be considered a “designated” beneficiary for RMD calculation purposes. The oldest named beneficiary that is alive and has assets remaining in the inherited IRA as of September 30 of the year after an IRA owner’s death (i.e., the determination date) is generally considered the designated beneficiary. Setting aside the scenario of a qualified trust beneficiary, it is important to note that if an IRA custodian/trustee separately accounts for each beneficiary’s share on or before December 31 of the year after an IRA owner’s death year, each beneficiary can use his/her own life expectancy to determine distribution amounts each year.

In a case where there are multiple beneficiaries and one or more of them is a nonindividual, and separate accounts have not been established by December 31 of the year after the IRA owner’s death, the single life expectancy option using a beneficiary’s age is not available for any of the beneficiaries.


Peter, who had a traditional IRA, died at age 57. Peter’s spouse Susan, their two children, Kadynce and Zane, and his favorite charity are the primary beneficiaries of his IRA. If separate accounting does not apply, all beneficiaries must use the distribution method that results in the fastest payout (i.e., the five-year rule because a nonindividual is one of the beneficiaries and Peter died before his RBD). If separate accounting applies, Peter’s spouse and his two children could elect the single life expectancy option, with each using his/her own single life expectancy to determine his/her annual RMD, and the charity would be subject to the five-year rule.

Spouse beneficiary—attained age method

If a deceased IRA owner’s surviving spouse is the sole beneficiary of the decedent’s IRA, or separate accounting applies and the spouse is one of multiple beneficiaries, the divisor used to calculate his/her annual RMD is determined by referring to his/her attained age on the Single Life Expectancy Table each year (i.e., the attained age method). Distributions for a spouse beneficiary must begin the year the deceased IRA owner would have attained age 70½. However, if the IRA owner passed away during or after age his/her age 70½ year, distributions must begin the year after death.

Example—spouse beneficiary

Gerald, who had a Roth IRA, died at age 68 in 2019. The beneficiary of Gerald’s Roth IRA is his spouse, Colleen, age 63 in 2019. As Gerald would have attained age 70½ in 2021, the deadline for Colleen to take the first RMD is December 31, 2021. The divisor used to calculate Colleen’s annual RMD is determined by referring to the Single Life Expectancy Table each year. As Colleen is age 65 in 2021 her RMD is calculated using the single life expectancy divisor for a 65 year old (i.e., 21.0). In 2022, Colleen’s RMD is calculated using the single life expectancy divisor for a 66 year old (i.e., 20.2). This continues until the IRA is depleted or she treats the IRA as her own IRA.

Nonspouse beneficiary—reduction method

The divisor used to calculate an RMD for a nonspouse beneficiary each year is determined by using the reduction method. To calculate the first RMD, use the age of the nonspouse beneficiary as of his/her birthday the year after the IRA owner’s death. For subsequent year calculations, subtract the previous year’s divisor by one.


Joleen, who had a traditional IRA, died at age 68 in 2019. The beneficiary of Joleen’s IRA is her son, Tony, age 49 in 2019. Under the single life expectancy method for a nonspouse beneficiary, Tony must start taking RMDs by December 31, 2020 based his life expectancy. The single life expectancy divisor used to calculate Tony’s RMD for 2020 is based on his age in 2020 (i.e., 50 = 34.2). Using the reduction method, his 2021 RMD is calculated using 33.2 (i.e., 34.2 – 1 = 33.2).

Exception to using the beneficiary’s age

If the owner of a traditional (including a SEP) or a SIMPLE IRA passes away on or after his/her RBD, the annual RMD is determined by comparing the longer of the decedent’s or beneficiary’s single life expectancy divisor, and using the divisor resulting in the longest distribution period. The decedent’s life expectancy divisor is determined by using his/her age in the year of death and reducing that divisor by one for the year after death. This divisor is then compared to the beneficiary’s single life expectancy divisor which is based on his/her age the year after the IRA owner’s death. The younger person will have a longer life expectancy, therefore his/her divisor is used in the RMD calculation. Subsequent year divisors are determine by using the reduction method in the case of a nonspouse beneficiary scenario.

Beneficiary is not an Individual

If the owner of a traditional (including a SEP) or a SIMPLE IRA passes away on or after his/her RBD and the IRA beneficiary is a nonindividual, the decedent’s age in the year of death is used to determine the life expectancy divisor. The divisor used the year after death (i.e., the year for which RMDs must begin) is determined by reducing the decedent’s year of death divisor by one. For subsequent years, subtract the previous year’s divisor by one.

Qualified trust and single life expectancy

If a qualified trust is the beneficiary of an IRA, the oldest trust beneficiary’s age is used for annual RMD calculation purposes. If the only beneficiary of a qualified trust is a spouse, the spouse’s life expectancy under the attained age method can be used for RMD calculation purposes, even though he/she is not the beneficiary of the IRA directly. If a decedent’s spouse is not the sole beneficiary of the trust, RMDs are calculated using the age of the oldest beneficiary of the trust. For more information regarding trust beneficiaries read the article Individual Retirement Accounts and Trust Beneficiaries.

Treat as own

A surviving spouse that is the only beneficiary of an IRA may elect to treat the decedent’s IRA as his/her own IRA. In this case a decedent’s IRA is typically transferred to the surviving spouse’s own IRA which can be done at the same or a different financial organization. The movement of assets under a “treat as own” election by a spouse is not reported to the IRA owner or to the IRS. The treat as own option is available at any time after death, not just the year of death. The surviving spouse, now an IRA owner, is subject to the RMD rules as an IRA owner going forward.


Bill, who had a traditional IRA, passed away in 2019 at age 73. Bill’s surviving spouse Lori, age 67, is the primary beneficiary of Bill’s IRA and must take any remaining RMD amount for 2019 from the IRA. Lori subsequently elects to treat Bill’s IRA as her own IRA and begins taking RMDs from her IRA in 2022, the year she attains age 70½.

Unique issues for a spouse beneficiary

  1. In certain situations a surviving spouse beneficiary may benefit by continuing to act in the capacity of a beneficiary after the death of an IRA owner (i.e., not treat the decedent’s IRA as his/her own). For example, if an IRA owner passes away prior to his/her required beginning date and the surviving spouse beneficiary is age 70½ or older he/she will not be required to take distributions until the deceased IRA owner would have been 70½. Additionally, if a spouse beneficiary is younger than age 59½ he/she can take death distributions from the beneficiary IRA without incurring a 10 percent penalty tax, which would be the case if he/she were to treat the decedent’s IRA as his/her own and subsequently take an early distribution without an exception to the penalty tax.
  2. A spouse may elect a death distribution, and within 60 days roll over the assets to his/her own IRA, with the end result essentially being the same as a “treat as own” election.
  3. If a spouse, while acting in the capacity of a beneficiary (i.e., spouse has not made an election to “treat as own”), fails to take an RMD timely or he/she makes a contribution to the inherited IRA, the IRA is then deemed to be the spouse’s own IRA as of the year of the missed distribution or contribution. This applies regardless of the age of the spouse beneficiary.
  4. When a Roth IRA owner’s surviving spouse beneficiary treats the decedent’s Roth IRA as his/her own Roth IRA, the five-year start year of the surviving spouse’s Roth IRA is the earlier of the decedent’s five-year start year or the spouse’s five-year start year if he/she already had a Roth IRA.


IRA custodians/trustees should understand a beneficiary’s options as laid out above before providing any educational assistance. The IRA custodian/trustee should recommend that the beneficiary seek tax advice before making a decision.

For an opportunity to learn more about IRAs and other tax-advantaged accounts including Health Savings Accounts and Coverdell Education Savings Accounts, consider our on-demand video training offered on a variety of topics. Go here to learn more about training opportunities available to you, or call us at 1-800-552-9408.

Diana Theis
Senior Specialized Consultant, Tax Advantaged Accounts
With more than 30 years of experience, Diana has worked closely with hundreds of financial organizations to help them create, implement, and maintain their tax-advantaged accounts program.