By Andy Ives, CFP®, AIF®
IRA Analyst
TRIVIA QUESTION:
John is age 40, he has a traditional IRA, and he is updating his beneficiary form. John wants to be sure that anyone he names on the form is an eligible designated beneficiary (EDB) who can leverage “the stretch,” meaning the beneficiary can take annual required minimum distributions (RMDs) based on his or her own single life expectancy. John does not want his beneficiaries to be saddled with the SECURE Act’s 10-year payout rule. He has many potential beneficiaries to choose from. Which of the following people qualify as an EDB for John’s IRA?
A. John’s disabled daughter Mia, age 13.
B. John’s father, Robert, age 67.
C. John’s brother Jerry, age 42.
D. John’s neighbor Raul, age 35.
E. John’s wife, Joanna, age 39.
F. John’s cousin Michelle, age 31.
G. John’s coworker Doug, age 45.
H. John’s mailman Steve, age 51.
I. Some random guy sitting next to John on the train ride into the city, age 78.
J. None of the above.
K. All of the above.
TRIVIA ANSWER:
The correct answer is “K. All of the above.” Everyone on the list qualifies as an EDB for John’s IRA and can leverage stretch RMDs. How is this possible? Other than answer A (John’s daughter Mia), everyone else is “not more than 10 years younger” than John. That is a qualifying EDB category. (John’s wife, Joanna, has additional stretch benefits, but that is a different topic.) The 5 classes of EDBs are:
1. Surviving spouses
2. Minor children of the account owner, until age 21
3. Disabled individuals
4. Chronically-ill individuals
5. Individuals not more than 10 years younger than the IRA owner
The fact that some of the people are not related to John does not disqualify them from being an EDB. Yes, the “random guy on the train” would be an EDB on John’s IRA simply because he is not more than 10 years younger than John. Being older qualifies. That’s why John’s father and his mailman are also EDBs. In fact, based on John’s age (40), everyone in the world who is currently age 30 or older would qualify as an EDB for John’s IRA.
The only EDB on the list who is more than 10 years younger than John is his daughter Mia. But if Mia were to inherit John’s IRA, she can leverage stretch RMDs over her entire lifetime based on her status as a disabled EDB.
If you have technical questions you would like to have answered, be sure to submit them to mailbag@irahelp.com, to be answered on an upcoming Slott Report Mailbag, published every Thursday.
https://irahelp.com/eligible-designated-beneficiary-trivia/
