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).

RELATED TERMS
  1. Extended IRA

    An IRA that allows a second generation beneficiary to continue ...
  2. Excess Accumulation Penalty

    The penalty a retirement account owner or the beneficiary of ...
  3. IRA Asset Will

    A document that specifies how the assets in an individual retirement ...
  4. See-Through Trust

    A trust that is treated as the beneficiary of an individual retirement ...
  5. Alternate Beneficiary

    In a will, an alternate beneficiary is usually named in case ...
  6. Qualified Distribution

    Distributions made from a Roth IRA that are tax and penalty free. ...
Related Articles
  1. Taxes

    September 30: A Key Date For Retirement Plan Beneficiaries

    Unless certain action is taken by this date, distribution rules can put the youngest inheritor at a disadvantage.
  2. Taxes

    The Tax Benefits Of Having A Spouse

    Check out the perks designed to promote and preserve your post-work savings - if you're married, that is.
  3. Retirement

    Inherited IRA and 401(k) Rules: Don't Run Afoul

    What you need to know when it comes to the complex rules for inherited IRAs and 401(k)s.
  4. Financial Advisors

    How to Handle Client Beneficiary Designations

    Beneficiary designations are a critical financial planning step that can be easily overlooked. Here's how to ensure they are properly done.
  5. Retirement

    Inheriting an IRA: Tax Rules You Should Know

    Don’t get hit with a 50% penalty because you don’t know the required minimum distribution (RMD) rules for IRA beneficiaries.
  6. Insurance

    Who is a Beneficiary?

    A beneficiary is a person or entity that receives funds, assets, property or other benefits from a trust, will, or life insurance policy.
  7. Retirement

    Designating A Trust As Retirement Beneficiary

    Designating a trust as your IRA beneficiary can be beneficial, but it requires proper planning to avoid problems.
  8. 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.
  9. Retirement

    Estate Planning Must-Haves For Unmarried Couples

    Society provides benefits to those who wed and punishes those who don't. Find out how to protect yourself.
  10. Options & Futures

    An Estate Planning Must: Update Your Beneficiaries

    Life changes make it time to rewrite your plan's designations.
RELATED FAQS
  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 Answer >>
  2. If an IRA owner dies after starting required minimum distributions (RMD) but the ...

    If the IRA owner dies after the required beginning date (RBD) and his/her beneficiary is his/her spouse, the spouse beneficiary ... Read Answer >>
  3. How does a qualified retirement plan early distribution work?

    Weigh the pros and cons of taking an early distribution from a retirement account. Most early distributions are subject to ... Read Answer >>
  4. Can an IRA beneficiary roll the IRA over into another account and designate another ...

    It depends on the provision of the IRA plan document. Some (though very few) do not allow the designation of successor beneficiaries. ... Read Answer >>
  5. How do my siblings and I receive inherited pension benefit payments from our deceased ...

    Generally, the provisions of the plan document determine the distribution options available to beneficiaries of retirement ... Read Answer >>
  6. Can the non-spouse beneficiary of an IRA name a successor beneficiary?

    Whether the beneficiary of an individual retirement account (IRA) can name a successor beneficiary (second generation beneficiary) ... Read Answer >>
Hot Definitions
  1. MACD Technical Indicator

    Moving Average Convergence Divergence (or MACD) is a trend-following momentum indicator that shows the relationship between ...
  2. Over-The-Counter - OTC

    Over-The-Counter (or OTC) is a security traded in some context other than on a formal exchange such as the NYSE, TSX, AMEX, ...
  3. Quarter - Q1, Q2, Q3, Q4

    A three-month period on a financial calendar that acts as a basis for the reporting of earnings and the paying of dividends.
  4. Weighted Average Cost Of Capital - WACC

    Weighted average cost of capital (WACC) is a calculation of a firm's cost of capital in which each category of capital is ...
  5. Basis Point (BPS)

    A unit that is equal to 1/100th of 1%, and is used to denote the change in a financial instrument. The basis point is commonly ...
  6. Sharing Economy

    An economic model in which individuals are able to borrow or rent assets owned by someone else.
Trading Center