Eligible Designated Beneficiary (EDB): Definition and Categories

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What Is an Eligible Designated Beneficiary (EDB)?

An eligible designated beneficiary (EDB) is included in a unique classification of retirement account beneficiaries. According to the Internal Revenue Service (IRS), EDBs are defined as a spouse, a minor child of the deceased, a disabled person, a chronically ill individual, or an individual not more than 10 years younger than the retirement account owner or participant.

Key Takeaways

• An eligible designated beneficiary (EDB) is a classification for individuals who inherit a retirement account.
• There are five categories of individuals considered EDBs, including surviving spouses.
• These individuals have a degree of flexibility when withdrawing funds from their inherited accounts than other beneficiaries.
• Distributions from a qualified retirement plan, such as a 401(k) or profit-sharing plan, are determined by the plan administrator, who should provide the beneficiaries with their distribution options.

Understanding Eligible Designated Beneficiary (EDB)

An eligible designated beneficiary (EDB) is always an individual. An EDB cannot be a nonperson entity such as a trust, an estate, or a charity, considered not designated beneficiaries. Five categories of EDBs include:

• Surviving spouse
• Minor child less than 21 years of age
• A disabled individual
• A chronically ill individual
• Any other individual who is not more than 10 years younger than the deceased account owner

An EDB can take a lump sum distribution of the entire inherited account, withdraw the balance from the inherited IRA account over their life expectancy with required minimum distributions (RMDs) calculated annually by the plan, or follow the 10-year rule and empty the entire account by the end of the 10th year following the year of the account owner’s death.

Distributions from a qualified retirement plan, such as a 401(k) or profit-sharing plan, are determined by the plan administrator, who should provide the beneficiaries with their distribution options. All beneficiaries must include taxable distributions in their gross income when filing taxes.

When a minor child reaches the age of majority, they are no longer considered an EDB, and the 10-year rule relating to withdrawal requirements for a designated beneficiary applies.

Types of Eligible Designated Beneficiaries

Surviving Spouse

Surviving spouses receive special treatment, allowing them to withdraw the balance from an IRA over the original owner’s life expectancy. Alternatively, a surviving spouse can roll an inherited IRA into their own IRA and withdraw when they take their own required minimum distributions (RMDs). Distributions from a qualified retirement plan, such as a 401(k), are determined by the plan administrator, and surviving spouses generally have flexibility when making withdrawals.

Owner’s Minor Child

A child who has not reached the age of 21, the age of majority according to the Internal Revenue Service (IRS), is permitted to withdraw from an inherited retirement account using their life expectancy. When the child reaches the age of 21, the 10-year rule for designated beneficiaries who are not EDBs goes into effect. The child has until Dec. 31 of the 10th year following their legal age birthday to withdraw all funds from the inherited retirement account.

A deceased retirement account owner’s minor child may get an extension, up until age 26, for the 10-year rule to go into effect, provided the child is pursuing a specified course of education.

Disabled Individual

According to the IRS, “Section 72(m)(7) of the Code provides that an individual shall be considered to be disabled if they are unable to engage in any substantial gainful activity because of any medically determinable physical or mental impairment which can be expected to result in death or to be of long-continued and indefinite duration.” A disabled individual who inherits a retirement account will use their life expectancy to calculate RMDs.

Chronically Ill Individual

The IRS Code Section 7702B(c)(2)(A) states the term “chronically ill individual” means any individual who has been certified by a licensed healthcare practitioner as—

• (i) being unable to perform (without substantial assistance from another individual) at least two activities of daily living for at least 90 days due to a loss of functional capacity,
• (ii) having a level of disability similar (as determined under regulations prescribed by the Secretary in consultation with the Secretary of Health and Human Services) to the level of disability described in clause (i), or
• (iii) requiring substantial supervision to protect such individuals from threats to health and safety due to severe cognitive impairment.

A chronically ill individual who inherits a retirement account is allowed to use their life expectancy to calculate RMDs.

Any Other Individual Not More than 10 Years Younger Than the Decedent

This category is a unique catch-all that includes certain friends and siblings who are identified as beneficiaries of a retirement account. An individual in this category who inherits a retirement account is allowed to use their life expectancy to calculate RMDs.

What Is a Beneficiary vs. a Designated Beneficiary?

A beneficiary is any individual or entity who receives some portion of an inherited estate. A designated beneficiary refers to a specific person or entity named and documented by the owner of the estate before their death.

What Is the Difference Between a Non-Spouse Beneficiary and an EDB?

If the non-spouse beneficiary does not meet the characteristics of an EDB, the non-spouse beneficiary must follow the 10-year rule and empty the inherited account within 10 years.

What Is a Lump Sum Distribution?

Beneficiaries of an IRA, and most retirement plans, can take a lump sum distribution of the inherited account where they withdraw the entire account balance. Beneficiaries must include any distributions they receive in their gross income when filing taxes.

The Bottom Line

An eligible designated beneficiary (EDB) is a classification for individuals who inherit a retirement account. Five categories of individuals are considered EDBs and include surviving spouses and minor children. Distributions from a qualified retirement plan, such as a 401(k) or profit-sharing plan, are determined by the plan administrator, who provides the beneficiaries with distribution options.

1. Internal Revenue Service. “Retirement Topics—Beneficiary.”
2. Internal Revenue Service. “Publication 590-B: Distributions from Individual Retirement Arrangements (IRAs),” Page 11.
3. Ed Slott and Company. “Age of Majority and the New SECURE Act Regulations.”
4. GovInfo. “Treasury Regulation Section 1.401(a)(9)-6: Q&A–15,” Pages 230–231 (Pages 16–17 of PDF).
5. Internal Revenue Service. “Uniform Issue List 72.00-00,” Page 2.
6. GovInfo. “Title 26—Internal Revenue Code,” Page 3702 (Page 2 of PDF).

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