Required minimum distributions (RMDs) are the bread and butter of many advisory firms helping retirees. But when it comes to the logistics of calculating the payments and handling the distributions, we see many firms with the same, significant blind spot: RMDs on inherited accounts.
Most custodians auto-calculate RMDs on an account when the custodian knows the account holder is 72 or older. What custodians don’t do automatically, however, is calculate RMDs for account holders below that age. So, if you have a client who has inherited an IRA and is required to take minimum distributions, the custodial software won’t know that and won’t calculate it.
What’s more, if you aren’t super diligent in your client notes about tracking the origin of that account, you risk missing that distribution as well.
Inherited IRAs and RMDs: Why extra attention may be necessary
The rules around RMDs from inherited IRAs can be a bit complex as they tend to vary based on the circumstances. For instance, if the account owner had started taking RMDs already at the time of death, there’s one set of rules. If the account owner died before taking any distributions, it’s a different set of rules.
If the owner died prior to distributions, the beneficiary may be able to take all of the distributions out within five years (as opposed to lifetime distributions). In other circumstances, distributions are calculated based on the age and life expectancy of the beneficiary.
The rules are also different for spouses versus nonspouse beneficiaries. When in doubt, check the IRS site for the most up-to-date stipulations. While we imagine many of you know these stipulations by heart, knowing them and automating how they’re applied to client accounts can be two different things.
How Advyzon can help
Advyzon calculates RMDs on inherited IRAs to help eliminate this potential blind spot. When a client receives an inherited IRA and you add the account to Advyzon, you must add the original account owner (now deceased) as a linked contact or family member within the household.
You’ll be prompted to fill in a few additional details about both the deceased account holder and your client, and when you save, the information will sync, and you’ll be able to automate these RMDs the same way you would handle any other.
Advyzon also allows you to manually input RMD calculations. You can either plug in new parameters for our software to use in its calculation, or you can simply plug in your own details.
By allowing greater flexibility AND easier automation, Advyzon is trying to make this common task a little bit easier so you can focus on more important things, like your clients.
