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Successor Beneficiaries

A successor beneficiary is the beneficiary of a beneficiary. As a successor, there is definitive guidance when it comes to handling the payouts from an inherited IRA.

When it comes to the responsibility of a beneficiary, it can be daunting to sort everything out.


Successor beneficiaries are strictly bound by the 10-year payout rule. If the previous beneficiary was using the 10-year rule, the successor can only continue that same 10-year window. If, however, the previous beneficiary was stretching required minimum distribution (RMD) payments over his own single life expectancy, upon the death of that first beneficiary, the successor is permitted to start his own 10-year payout period. All good so far.

Now, the concern. For the past two-plus years the industry has been operating under the impression that there were no RMDs within the 10-year period. However, the new SECURE Act regulations dictate that there may or may not be annual RMDs within the 10-year period for successor beneficiaries. Whether or not RMDs apply within the 10 years is predicated on how old the original IRA owner was in relation to the required beginning date (RBD). If the original IRA owner died on or after the RBD (April 1 of the year after a person turns 70 ½ or 72), then the successor will have to take RMDs within the 10-year period. If the original IRA owner died before the RBD, then no RMDs are required within the 10-year period for the successor. (How to calculate those RMDs is another story.)

And that is why the financial advisor was so incredulous. His client was the first beneficiary who inherited the IRA more than a dozen years earlier. His client had been properly stretching the inherited account RMD payments over her own single life expectancy, but she just passed away. As the first beneficiary, upon her death, her successor now has the 10-year rule. When I asked the advisor if he had any idea who the original IRA owner was 12+ years ago or how old that person was at death, he replied with what became the title of this article.

The account had changed custodians a couple of times, information was lost, and the advisor acquired the client and inherited IRA only a few years earlier. He had three options: 1) Research the details of the age of the original IRA owner; 2) Hope the successor beneficiary knew definitively how old the original IRA owner was at death; or 3) Take a conservative approach and require the successor beneficiary to take annual RMDs within the 10-year period.

How many beneficiary IRAs exist that were inherited prior to the SECURE Act in 2020? Hundreds of thousands? A million? Every single one that is left to a successor beneficiary will have to go through this exercise. “You have got to be kidding me” - the appropriate response.

By Andy Ives, CFP®, AIF®
IRA Analyst
Ed Slott and Company, LLC

Copyright © 2022, Ed Slott and Company, LLC Reprinted from The Slott Report, 05/23/22, with permission. https://www.irahelp.com/slottreport/successor-beneficiaries-%E2%80%93-%E2%80%9Cyou-have-got-be-kidding-me%E2%80%9D, Ed Slott and Company, LLC takes no responsibility for the current accuracy of this article. Chris Cordoba, founder of California Retirement Advisors, is a member of Ed Slott's Master Elite IRA Advisor Group.
Investment advisory services offered through Mutual Advisors, LLC DBA California Retirement Advisors, a SEC registered investment adviser. Securities offered through Mutual Securities, Inc., member FINRA/SIPC. Mutual Securities, Inc. and Mutual Advisors, LLC are affiliated companies. CA Insurance license #0B09076. This content is developed from sources believed to be providing accurate information and provided by California Retirement Advisors. It may not be used for the purpose of avoiding any federal tax penalties. Please consult legal or tax professionals for specific information regarding your individual situation. The opinions expressed and material provided are for general information, and should not be considered a solicitation for the purchase or sale of any security. California Retirement Advisors, nor any of its members, are tax accountants or legal attorneys and do not provide tax or legal advice. For tax or legal advice, you should consult your tax or legal professional.