Five-Year Rule

AAA

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.

INVESTOPEDIA EXPLAINS 'Five-Year Rule'

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

RELATED TERMS
  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. See-Through Trust

    A trust that is treated as the beneficiary of an individual retirement ...
  6. Settlor

    The entity that establishes a trust. The settlor also goes by ...
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 Full Answer >>
  2. When can benefits be received from a provident fund?

    Like most retirement savings vehicles, participants in provident funds are eligible to receive benefits at retirement. However, ... Read Full Answer >>
  3. Is Social Security Income a perpetuity?

    Because Social Security income does not continue indefinitely, it cannot be classified as a perpetuity. What Is a Perpetuity? A ... Read Full Answer >>
  4. What types of investments are allowed in a provident fund?

    Different provident funds have different investment rules and restrictions. The allowable investments in an Indian provident ... Read Full Answer >>
  5. How does a provident fund compare to U.S. Social Security?

    A provident fund shares many attributes of the U.S. Social Security program, including government sponsorship and set contribution ... Read Full Answer >>
  6. How are benefits from a provident fund taxed?

    Not all provident fund benefits are treated equally, even in the same country. Thailand, for instance, has three separate ... Read Full Answer >>
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. Insurance

    Indexed Universal Life Insurance: The Pros & Cons

    What you need to know, to see if these vehicles fit into your financial plan.
  6. Retirement

    Millennials: Retire With $1,000,000 --Here's How

    It is possible for Millennials to retire with $1,000,000, if they take the right steps and make the necessary sacrifices now.
  7. Taxes

    Estate Planning for a Surviving Spouse

    Estate planning for surviving spouses can be difficult for a number of reasons, so it's important to have good support and financial advice.
  8. Professionals

    Gay Marriage Ruling: Its Impact on Estate Planning

    Same-sex couples now face the same legal and financial issues as heterosexual couples; some may need to adopt simpler, more mainstream financial plans.
  9. Professionals

    Pension Annuity vs. Lump Sum: Which is Best?

    Which pension distribution option best serves your client, a pension annuity or a lump-sum payout?
  10. Taxes

    3 Secrets You Didn't Know About Estate Planning

    Every advisor and saver needs to know these three estate planning secrets.

You May Also Like

Hot Definitions
  1. American Dream

    The belief that anyone, regardless of where they were born or what class they were born into, can attain their own version ...
  2. Multicurrency Note Facility

    A credit facility that finances short- to medium-term Euro notes. Multicurrency note facilities are denominated in many currencies. ...
  3. National Currency

    The currency or legal tender issued by a nation's central bank or monetary authority. The national currency of a nation is ...
  4. Treasury Yield

    The return on investment, expressed as a percentage, on the debt obligations of the U.S. government. Treasuries are considered ...
  5. Bund

    A bond issued by Germany's federal government, or the German word for "bond." Bunds are the German equivalent of U.S. Treasury ...
  6. European Central Bank - ECB

    The central bank responsible for the monetary system of the European Union (EU) and the euro currency. The bank was formed ...
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!