Nonspouse beneficiaries of a Gusto Retirement IRA can use this article to determine their distribution options after an account owner’s death. Your options depend on your beneficiary category, the account owner’s date of death, and whether the owner had reached their required beginning date (RBD).
For more information about your options, or to review the applicable life expectancy tables, see IRS Publication 590-B.
Note: This article covers nonspouse beneficiaries only. If you’re the sole spouse beneficiary, spousal beneficiary rules are addressed in IRA death benefit options for a spouse beneficiary.
Required minimum distribution (RMD): The minimum amount that has to come out of a retirement account each year once distributions are required to begin.
Required beginning date (RBD): The deadline by which an IRA owner has to start taking RMDs. It’s April 1 of the year after the year the owner reaches their applicable age. Roth IRAs have no RBD, because a Roth IRA owner isn’t subject to RMDs.
Applicable age: The age at which RMDs have to begin, which depends on date of birth. For most people it’s now 73. It rises to 75 for anyone who reaches age 74 after 2032. For older birth years it may be 70½ or 72.
Single Life Table and Uniform Lifetime Table: The two IRS life expectancy tables used to calculate an annual distribution amount. Which one applies depends on the option you choose, as described below. The Uniform Lifetime Table generally produces a smaller annual amount than the Single Life Table.
Eligible designated beneficiary: You’re an eligible designated beneficiary if, as of the account owner’s date of death, you’re the surviving spouse, a minor child of the account owner (until you turn 18), disabled within the meaning of IRC 72(m)(7), chronically ill within the meaning of IRC 7702B(c)(2), or not more than 10 years younger than the account owner.
Designated beneficiary: You’re a designated beneficiary if you’re an individual named as beneficiary but don’t meet any of the eligible designated beneficiary categories above.
Non-person (nondesignated) beneficiary: A charity, an estate, or certain entities and nonqualified trusts named as the IRA’s beneficiary — not an individual.
Your category is determined as of the date of the account owner’s death. You’re an eligible designated beneficiary if you are:
The surviving spouse of the account owner (spousal beneficiary rules are addressed separately and are not covered in this article)
A child of the account owner who has not reached age 18
Disabled within the meaning of IRC Section 72(m)(7)
A “chronically ill individual” within the meaning of IRC Section 7702B(c)(2)
An individual who is not more than 10 years younger than the account owner
If you don’t meet this definition, you’re either a designated beneficiary — any other individual named as beneficiary — or, if the named beneficiary isn’t a person, a non-person (nondesignated) beneficiary, such as a charity, an estate, certain entities, or a nonqualified trust.
Once you know your category, two facts determine your distribution options:
What was the account owner’s date of death — specifically, whether it was before January 1, 2020?
Did the account owner die before their RBD?
This step is easy to miss, and there could be a penalty if an RMD is missed.
If the account owner was required to take an RMD for the year they died and hadn’t taken the full amount, the remaining amount generally has to come out of the account, and you can take it.
Note: Under regulations finalized in July 2024, there’s an automatic waiver of the excise tax if the remaining amount is taken by the later of the account owner’s tax filing deadline for the year of death (including extensions) or December 31 of the following year.
This step doesn’t apply to a Roth IRA, since a Roth IRA owner wasn’t required to take distributions during their lifetime.
No matter when the account owner died or whether they’d reached their RBD, you generally may take the entire account balance at once.
The SECURE Act, effective January 1, 2020, introduced the eligible designated beneficiary category and the rules below.
If the account owner died before their RBD, or you inherited a Roth IRA, you can choose from:
The 10-year rule — you must distribute the full balance by December 31 of the year containing the 10th anniversary of the account owner’s death; or
Life expectancy payments, nonrecalculated, using your own single life expectancy, beginning no later than December 31 of the year following the year of the account owner’s death
Note: If you’re a minor child, you can take life expectancy payments, but must switch to the 10-year rule once you turn 18.
If the account owner died on or after their RBD, you must take the longer of the following, with payments beginning no later than December 31 of the year following the year of the account owner’s death:
Single life expectancy payments based on your own life expectancy in the year after death, nonrecalculated; or
Single life expectancy payments based on the account owner’s single life expectancy in the year of death, reduced by 1 each subsequent year (nonrecalculated)
Note: As above, if you’re a minor child, you must switch to the 10-year rule once you turn 18.
If the account owner died before their RBD, or you inherited a Roth IRA, you must distribute the assets under the 10-year rule, with the account fully distributed by December 31 of the year containing the 10th anniversary of the account owner’s death.
If the account owner died on or after their RBD, you’re subject to the 10-year rule, but must also take mandatory annual life expectancy payments beginning no later than December 31 of the year following the year of death, using your own single life expectancy in that year. Your annual payments continue on a nonrecalculated basis, and you must fully distribute the account by December 31 of the year containing the 10th anniversary of the account owner’s death.
If the account owner died before their RBD, or the IRA is a Roth IRA, the non-person beneficiary must distribute the assets under the 5-year rule, with the account fully distributed by December 31 of the year containing the 5th anniversary of the account owner’s death.
If the account owner died on or after their RBD, the non-person beneficiary must take life expectancy payments, beginning no later than December 31 of the year following the year of death, using the account owner’s single life expectancy in the year of death, reduced by 1. Payments continue on a nonrecalculated basis (reducing the prior year’s factor by 1 each year) until the account is fully distributed once the factor reaches 1 or less.
The eligible designated beneficiary category didn’t exist before the SECURE Act. If the account owner died before January 1, 2020, you’re instead subject to the individual beneficiary rules described below.
If the account owner died before their RBD, or you inherited a Roth IRA, you can choose between:
The 5-year rule — you must distribute all assets by December 31 of the year containing the 5th anniversary of the account owner’s death; or
Single life expectancy payments based on your age, nonrecalculated, beginning no later than December 31 of the year following the year of the account owner’s death
If the account owner died on or after their RBD, you must distribute the account using the longer of:
Single life expectancy payments based on your age, starting in the year after death, nonrecalculated; or
Single life expectancy payments based on the account owner’s age, starting with the owner’s life expectancy in the year of death, reduced by 1 each year (nonrecalculated)
Under either option, you must begin distributions no later than December 31 of the year following the year of the account owner’s death.
If the account owner died before their RBD, or the IRA is a Roth IRA, the non-person beneficiary is subject to the 5-year rule; all assets must be distributed by December 31 of the year containing the 5th anniversary of the account owner’s death.
If the account owner died on or after their RBD, the non-person beneficiary must take single life expectancy payments, beginning no later than December 31 of the year following the year of death, using the account owner’s single life expectancy in the year of death, reduced by 1. Payments continue on a nonrecalculated basis (reducing the prior year’s factor by 1 each year) until the account is fully distributed once the factor reaches 1 or less.
This information is general in nature and is for informational purposes only. It should not be used as a substitute for specific tax, legal and/or financial advice that considers all relevant facts and circumstances. You are advised to consult a qualified financial adviser or tax professional before relying on the information provided herein.