Five-Year Rule

Definition

Under the five year rule, the inherited retirement assets must be fully distributed by the end of the 5th year, following the year the participant dies. For instance, if the participant dies in 2010, the assets must be fully distributed by December 31, 2015.

The five year rule applies only if the participant dies before the  required beginning date.

Under the five-year rule, distributions before December 31 of the 5th year, following the year the participant dies are optional.

Referring Cite

IRC § 401(a)(9)(B)(ii), Treas. Reg. §1.401(a)(9)-3, Q&As 1, 2

Additional Helpful Information

• When there is a designated beneficiary for the retirement account, the life-expectancy option is the default option under the RMD regulations. However, some plan documents and IRA agreements do not offer the life-expectancy option; instead they may require the beneficiary to distribute the balance soon after the participant’s death or within the five-year period.
• If the beneficiary is a non-person, such as an estate of a non-qualified trust , the life-expectancy rule is not an option. Instead, the assets must be distributed within the five-year period, or faster if the plan document so requires.

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