Five-Year Rule


DEFINITION of 'Five-Year Rule'

If a retirement account owner dies before the required beginning date for receiving distributions, the beneficiary may distribute the inherited assets over his/her (the beneficiary's) life expectancy or distribute the assets under the five-year rule. Under the five-year rule, the assets must be distributed by December 31 of the fifth year since the retirement account owner's death.

BREAKING DOWN 'Five-Year Rule'

The five-year rule does not apply if the IRA owner dies after the required beginning date (RBD).

  1. Required Beginning Date - RBD

    The date by which a qualified plan participant or IRA owner must ...
  2. Qualified Distribution

    Distributions made from a Roth IRA that are tax and penalty free. ...
  3. Required Minimum Distribution - ...

    The amount that Traditional, SEP and SIMPLE IRA owners and qualified ...
  4. Individual Retirement Account - ...

    An investing tool used by individuals to earn and earmark funds ...
  5. Letter of Intent - LOI

    A document outlining the terms of an agreement before it is finalized. ...
  6. Qualified Longevity Annuity Contract

    A Qualified Longevity Annuity Contract (QLAC) is a deferred annuity ...
Related Articles
  1. Taxes

    Distribution Rules For Inherited Retirement Plan Assets

    If you've recently inherited a retirement plan, you must get to know the rules for distributing the funds.
  2. Retirement

    3 Deadlines For Retirement Plan Beneficiaries

    To take full advantage of new RMD regulations, beneficiaries need to take action before important deadlines.
  3. Options & Futures

    An Estate Planning Must: Update Your Beneficiaries

    Life changes make it time to rewrite your plan's designations.
  4. Taxes

    5 Retirement Plan Moves To Make Before Year-End

    Make sure all your loose ends are tied with these simple reminders and tips for your plans.
  5. Professionals

    Charity or Retirement Saving: Which to Prioritize?

    Financial planners need to help clients with their financial goals but also support them in their philanthropic endeavours.
  6. Mutual Funds & ETFs

    What Target-Date Funds Can Teach About Investing

    Target-date funds are a popular way to invest for retirement. Here's what they can teach the novice investor.
  7. Professionals

    How Legacy Planning Can Help Capture New Clients

    Don’t underestimate the importance of legacy planning with your clients—it could serve as method for you to create new business with any heirs.
  8. Taxes

    The Top 10 Caribbean Tax Havens

    Discover relevant tax policy information about the top 10 tax havens located in the Caribbean, including the Cayman Islands and the Bahamas.
  9. Stock Analysis

    3 Stocks that Are Top Bets for Retirement

    These three stocks are resilient, fundamentally sound and also pay generous dividends.
  10. Professionals

    Tips for Retaining Your Client's Heirs

    It's a good idea to start working with your clients' children early on to forge relationships and hopefully continue to manage that wealth.
  1. Does the five-year rule apply if a non-spouse inherits an IRA after the required ...

    The five-year rule applies only when the IRA owner dies before the required beginning date (RBD). If the IRA owner dies after ... Read Full Answer >>
  2. Are Cafeteria plans taxable?

    Whether the benefits you receive through your employer-sponsored cafeteria plan are taxable depends entirely on which benefits ... Read Full Answer >>
  3. Why is the Cayman Islands considered a tax haven?

    The Cayman Islands is one of the most well-known tax havens in the world. Unlike most countries, the Cayman Islands does ... Read Full Answer >>
  4. Why is Luxembourg considered a tax haven?

    Luxembourg has been the tax haven of choice for many corporations and mega-rich individuals around the world since the 197 ... Read Full Answer >>
  5. Why is Panama considered a tax haven?

    The Republic of Panama is considered one of the most well-established pure tax havens in the Caribbean due to extensive legislation ... Read Full Answer >>
  6. Why is Andorra considered a tax haven?

    Andorra is one of many locations around the globe considered a tax haven because of its relatively lenient tax laws. However, ... Read Full Answer >>

You May Also Like

Hot Definitions
  1. Real Estate Investment Trust - REIT

    A REIT is a type of security that invests in real estate through property or mortgages and often trades on major exchanges ...
  2. Section 1231 Property

    A tax term relating to depreciable business property that has been held for over a year. Section 1231 property includes buildings, ...
  3. Term Deposit

    A deposit held at a financial institution that has a fixed term, and guarantees return of principal.
  4. Zero-Sum Game

    A situation in which one person’s gain is equivalent to another’s loss, so that the net change in wealth or benefit is zero. ...
  5. Capitalization Rate

    The rate of return on a real estate investment property based on the income that the property is expected to generate.
  6. Gross Profit

    A company's total revenue (equivalent to total sales) minus the cost of goods sold. Gross profit is the profit a company ...
Trading Center
You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!