Can grandchildren use the 10-year rule for an inherited IRA with required distributions?

Thank you for the detailed explanation! I'm a bit confused though - I thought the SECURE Act changed things so that non-spouse beneficiaries HAD to withdraw everything within 10 years? Are you saying that because they're grandchildren under 18, they get different treatment? Also, do I need to start these RMDs immediately in 2025, or is there a deadline after the date of death?

You're right to be confused - the SECURE Act did change the rules, but it kept special exceptions for certain "eligible designated beneficiaries" which includes minor children until they reach the age of majority (21 in most cases). Grandchildren usually wouldn't qualify for this exception, BUT since these children's parent (your sister) passed away before your father, they step into her shoes as beneficiaries and qualify for the special treatment. The first RMD needs to be taken by December 31 of the year following the year of death. Since your father passed in 2024, the first distribution would need to be taken by December 31, 2025. Once the children reach age 21, they would then switch to the 10-year rule from that point.

How does their system handle the special cases for minor beneficiaries? My accountant charged me $1200 last year just to figure out the RMD calculations for my sister's kids, and I'm looking for something more affordable for this year's distributions.

Is it legit though? I've tried so many tax "helpers" that ended up just being subscription traps. Anyone else use this before I waste my time?

Their system has specific calculations for minor beneficiaries and automatically applies the correct rules based on the relationship to the original account holder. It determines whether the life expectancy method or 10-year rule applies in your situation. I completely understand the subscription concern. I had the same worry, but it's actually just a one-time fee for the analysis and document preparation. They don't lock you into anything recurring, and compared to what my accountant quoted me ($900+), it was a massive savings.

Wait, how does this actually work? They somehow get you through the IRS phone queue faster? That seems impossible given how understaffed the IRS is.

Sounds like snake oil to me. I've tried every "trick" to reach the IRS faster, including calling at odd hours, using different phone numbers, etc. Nothing works. I doubt this is any different.

It's not a queue-jumping system but rather a callback service. They use an automated system that continually calls the IRS and navigates the phone tree, then when they finally get through to an agent, they connect the call to you. It saves you from having to sit on hold for hours. I was skeptical too initially. I had spent over 8 hours across multiple days trying to get through about my inherited IRA question. The service just takes the waiting game out of your hands - you receive a text when they're about to connect you with an agent.

Is there any way to avoid having to file separate tax returns for them until they're older? And what happens to the custodial accounts when they turn 18 (or 21 depending on state)? Do they just get full access to everything at that point?

Unfortunately, there's no way around filing tax returns for them if they receive RMDs from an inherited IRA. The good news is that children typically have very low tax rates on unearned income up to certain thresholds. Regarding custodial accounts, yes, they will gain full control at either age 18 or 21, depending on your state's laws. This is something to consider in your planning. Some guardians choose to withdraw only the minimum required amounts and then invest those funds conservatively in the custodial accounts, knowing the children will eventually have access. Others might consider working with an attorney to establish more protective structures, though that adds complexity and cost.

This is actually really smart in some cases. If the kids have no other income, each could potentially take about $12,950 per year (standard deduction for 2025) almost tax-free. Might be better than stretching tiny required distributions over decades.

That's a really good point about accelerating the distributions while they're young. I hadn't considered that approach. With the $42K split between two kids, that's only about $21K each. Taking larger distributions now while they're in the 0% tax bracket could definitely be smarter than tiny RMDs stretched over decades. Do you know if there are any restrictions on taking more than the required minimum from an inherited IRA? I assume they can always take out more than required, but I want to make sure there aren't any penalties for larger distributions.

This is incredibly helpful information! I was wondering about the documentation requirements. Do you know if Vanguard accepts guardianship letters from probate court, or do they specifically need formal guardianship documents? The probate court appointed me to handle the estate matters, but I'm not sure if that's the same thing as being their official financial guardian. Also, when you say "meticulous records" - are there specific forms or tracking methods you'd recommend? I want to make sure I'm documenting everything the right way from the beginning rather than trying to reconstruct it later.

Great question about the documentation! Vanguard typically requires formal guardianship papers rather than just probate court letters, since those serve different purposes. The probate appointment gives you authority over the estate, but guardianship gives you authority over the minors' financial affairs going forward. You might need to file for formal guardianship in family court if you haven't already. For record keeping, I created a simple spreadsheet with columns for: Date, Account (which child), Transaction Type (RMD/distribution), Amount, Tax Forms Filed, and Notes. I also keep a physical file folder for each child with copies of all tax forms, distribution confirmations, and correspondence with Vanguard. The key forms you'll be filing annually are Form 1041 (if the estate is still open) and individual Form 1040s for each child showing their RMD income. Form 8606 tracks the basis if any of the IRA was non-deductible contributions (though most aren't). I photograph everything before mailing and keep the photos in cloud storage as backup. One more tip - set up a recurring calendar reminder each October to calculate and request the next year's RMDs. The December 31st deadline comes up fast, and Vanguard can take a few weeks to process inherited IRA distributions during busy periods.

I'm so sorry for your loss, and thank you for sharing your experience. You're absolutely right about getting professional help for the first year - I've been hesitating on the cost, but given all the complexities people have mentioned here, it sounds like it would be worth it to avoid any costly mistakes. The point about Vanguard potentially applying the wrong rules is concerning. I'll make sure to specifically ask about "stretch IRA" provisions for minors when I contact them. Did you have to provide any special documentation to prove that your grandchildren qualified for the life expectancy method rather than the 10-year rule? Also, when you mention "proper way to report the income on the children's returns versus treating it as estate income" - can you explain that a bit more? I'm worried I might make that exact mistake since I'm handling both the estate matters and the kids' inherited accounts.

The documentation I had to provide was pretty straightforward - death certificates for both the original account holder and my son (showing he predeceased), plus the original beneficiary designations. The key was proving that my grandchildren "stepped into" their father's position as beneficiaries, which qualifies them for the favorable treatment. Regarding the income reporting - this was the tricky part my CPA caught. The RMDs from inherited IRAs are income to the children personally, not estate income, even though you're managing everything as guardian. So each child files their own Form 1040 reporting the distribution as "Distributions from pensions, annuities, etc." The estate should NOT report these distributions on Form 1041. What confused me initially was thinking that since I was handling the estate AND the inherited IRAs, it was all "estate stuff." But they're actually separate - the inherited IRAs belong directly to the kids, you're just managing them as guardian. The estate only deals with assets that were actually part of the deceased's estate at death, not the IRAs that passed directly to beneficiaries. My CPA set up a clear system: estate tax returns for actual estate assets, separate individual returns for each child for their IRA distributions. Made everything much clearer once I understood that distinction.

This is exactly the kind of detail I was worried about missing! My father was 76 when he passed, so yes, he had already started his RMDs. I hadn't even thought about how that might affect the calculations for the kids. The timeline document is a brilliant idea - you're right that the chain of inheritance here is pretty complex. Sister → Father → Grandchildren definitely isn't the typical scenario, so having that clearly documented should help avoid confusion with Vanguard. When you mention "successor beneficiary" rules, does that change anything about the life expectancy method the kids can use? Or is it more about making sure Vanguard applies the right calculation tables? I want to make sure I understand this correctly before I contact them. Also, do you happen to know if the fact that my father had already been taking RMDs makes the children's distributions more favorable or less favorable tax-wise? Just trying to understand if this complicates things further or if it's just a different calculation method.