If the beneficiary of an inherited IRA dies before exhausting the inherited IRA or qualified retirement plan (QRP) through distributions, how are the ongoing distributions to be handled?
It’s actually rather simple:The successor beneficiary (determined by the plan or IRA beneficiary designation forms) steps into the shoes of the original beneficiary and continues receiving RMDs on the same schedule as the original beneficiary, based upon the original beneficiary’s attained age.
When the account is inherited by the original beneficiary, he or she must begin taking RMDs based upon his or her own age at that point in time (if enacting the “stretch” provision). The rate at which the beneficiary must take RMDs is based upon the Single Life Table, also known as Table I. Use the beneficiary’s age when RMD’s must begin to determine the factor to use to calculate the RMD from Table I. This number is called the Applicable Distribution Period (ADP), and it is intended to approximate the lifespan of the beneficiary.
Apply that factor against the previous year’s balance in the account at the end of the year. For succeeding years, you would subtract 1 from the factor obtained above, and divide the end of year balance by that number to determine the RMD amount.
A successor beneficiary would just simply continue the process using the same ADP, subtracting one from the factor every year. In other words, nothing changes about the distribution in the case of a successor beneficiary.