Stretching Out IRA Distributions After Death

New Rules May Make The Stretch IRA, Dynasty IRA or the Perpetual IRA Obsolete!

Because of the new Treasury Regulations that were printed in the Federal Register on January 17, 2001, the Private Letter Rulings that form the basis for the "Stretch IRA" may be obsolete. You may also want to refer to our Notes On The New Proposed Regulations.


IRA distributions after death is likely to be one of the more interesting tax topics of 2000. It was thought that IRAs were to be completely distributed by the end of the year following the year of the IRA owner's death, if the IRA owner used the Recalculation method and took the distributions over her life. In Letter Rulings 200018057, 199951053 and 9651040, the IRS may be giving beneficiaries a big break. Keep in mind that these are only Letter Rulings! For lack of better description, lets call this potential tax benefit the  Perpetual IRA.

How This Works

  1. The decedent took minimum required distributions using a life expectancy that was based on his life alone using the Recalculation method.
  2. The beneficiary was not a spouse. In fact, the beneficiary was more than 10 years younger than the IRA owner.
  3. After the IRA owner died, the beneficiary was able to take the minimum required distributions over her life expectancy using the Term Certain method.


Distributions can be taken over a much longer time than originally thought. Taxes on the IRA were postponed for a long time.


This beneficial treatment is based on Letter Rulings. That is relatively weak authority. Furthermore, laws can be easily passed to close down this Perpetual IRA benefit.

Planning Points

Life Expectancy Method

It looks like, before death, the IRA owner must use a single, not joint, life expectancy. This causes higher distributions over the life of the IRA owner compared to using a joint life method. If the IRA owner lives for a long time after 70˝ and only uses a single life expectancy, there might not be much to distribute after death anyhow.

If the IRA owner uses a single life expectancy to take advantage of the Perpetual IRA and the IRS reverses its position on the Perpetual IRA, the IRA might end up taxed quicker than if the IRA owner used a joint life expectancy.

Split Up the IRA(s)

There might be benefits to splitting IRAs even if the Perpetual IRA is disallowed.

Assume the following:

  1. Mom is the IRA owner and died at the age of 75. The IRA at death was $60,000.
  2. When Mom died, son Erick was 55 and wealthy.
  3. When Mom died, son Bill was  50 and in desperate need for money.
  4. When Mom died, daughter Jean was 35 and wealthy.

If the Perpetual IRA is viable, the IRA will be distributed over 28.6 years, the life expectancy of the oldest beneficiary, Erick. That is assuming that Bill, who needs money now, doesn't force the complete liquidation of the IRA.

On the other hand, if there were three IRAs of $20,000 each and only one child as beneficiary for each IRA, Erick could spread the IRA distributions over 28.6; Bill could get his money now; and Jean could spread the IRA distributions over 47.3 years.

I am guessing that it might make good sense to split the IRAs before Mom had reached her Required Beginning Date.

Even if the Perpetual IRA is not viable, it might make sense to split the IRAs so Bill could get his money ASAP, and Erick and Jean could spread the distributions as long as allowable.

Simplify Your Work, But Don't Cut Your Rates!

As a user of the IRA/Pension Distribution Planner, you will save time planning for IRA distributions. Unfortunately, you probably bill by the hour. Reduced time means lower billings, and productivity software will reduce your time. Remember to  charge more when you use productivity software like the IRA/Pension Distribution Planner.

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