The beneficiary's clock sets inherited-IRA RMDs

Two questions in this week's Slott Report mailbag look like separate compliance puzzles, but both turn on dates an advisor should already have in the file: whose life span sets the inherited-IRA RMD after an RBD death, and whose five-year clock governs a Roth conversion.

On the first, Sarah Brenner—IRAHelp's director of retirement education—confirms the reader's premises before correcting the reach. When an IRA owner dies after his required beginning date, the 10-year payout rule applies to certain beneficiaries and annual RMDs must be taken during that period. The divisor, though, comes from the beneficiary's table rather than the decedent's, calculated on the beneficiary's life expectancy and not the owner's.

That turns a beneficiary's date of birth into a distribution input rather than a formality—worth storing next to the designation itself, where it survives the death of the person who signed it.

The second question carries more planning weight: an owner converts to a Roth and dies before the five-year holding period closes—do the beneficiaries lose tax-free treatment on the earnings? Brenner's answer cuts both ways. The holding period does apply to inherited accounts, which is the bad news; the good news is that it starts with the owner's first contribution and does not restart for the beneficiaries, who would need to wait out whatever is left of the owner's five-year period before earnings come out tax-free.

The two answers run on different clocks, and that is the part advisors tend to flatten. The inherited-IRA divisor belongs to the beneficiary from the date of death, while the Roth holding period belongs to the owner and travels with the account—a client who has held a Roth for years produces a shorter beneficiary wait than one whose first Roth contribution came late. For any client weighing a conversion in their seventies, that raises a second question beyond the tax cost now: how much of the five-year period would beneficiaries still be sitting through?

As this publication has argued, tax alpha has moved from harvesting to statutory repair, and both of Brenner's answers are repair work—they decide what leaves an account and when, not what the account holds. The residue is two dates: the beneficiary's birth date and the date of the owner's first Roth contribution, both collected while the owner is alive to supply them, rather than reconstructed later by a beneficiary who has neither.