CONCURRENT LIFE EXPECTANCIES | Ethos Capital Advisors

I am usually patient with the IRS. I understand the massive workload they have, and there are tax cheats lurking around every corner. The IRS does its best to ensure no loopholes exist for bad actors to circumvent tax laws to avoid paying their fair share. However, when it comes to some of the guidance in the recently released SECURE Act regulations, my patience has run out. There are several items in the proposed regulations that make me SMH – shake my head. But I will focus on one egregious case of ridiculous government oversight: monitoring concurrent life expectancies. This rule is so complex and misguided that there is little chance it will ever be properly followed.

Example: Robert dies at age 75, which is after his required beginning date (RBD) dictating when RMDs begin. Robert’s beneficiary is his older sister Sally, age 80. Since Sally is not more than 10 years younger than Robert, she can stretch RMD payments. However, since Robert died after his RBD and Sally is older than Robert, Sally is permitted to use Robert’s single life expectancy to calculate her RMDs. Robert’s life expectancy in the year after his death is 14.1 years for a 76-year-old. For subsequent years, Sally subtracts 1 each year. As such, the IRA should last for 15 years until Sally is age 95.

And here is where things go off the rails. From the Explanation of Provisions of the proposed regulations:

“…these proposed regulations require a full distribution of the employee’s remaining interest in the plan in the calendar year in which the [life expectancy factor] would have been less than or equal to one if it were determined using the beneficiary’s remaining life expectancy (even though the [life expectancy factor] for determining the required minimum distribution is based on the remaining life expectancy of the employee).”

Translation: Even though Sally is using Robert’s life expectancy factor (14.1) to calculate her annual RMDs, she must also monitor her OWN life expectancy factor to determine when she must empty the account. Had Sally used her own life expectancy to calculate RMDs, she would have started with 10.5 (the factor for Sally’s age in the year after Robert’s death – age 81). Eleven years later, Sally’s own life expectancy factor would have been down to 0.5. Since 0.5 is less than one, Sally is required to empty the inherited IRA at age 91. This is true even though Robert’s life expectancy still had four years remaining and was the life expectancy Sally had been properly using to calculate her RMDs from age 81 to 91.

C’mon, man. Give me a break. Why focus on something as minuscule as this? Aren’t there bigger fish to fry? We must make a rule for the rare occurrence when this happens, just to fractionally accelerate RMD payments to generate pennies more in tax revenue? Good luck explaining this rule to the public. Good luck implementing it and enforcing it.