Beneficiary IRA Mistakes???
Please bear with me, this is long and complicated.
Jane Doe DOB 9-14-21 DOD 5-6-99 John’s mother
John Doe DOB 7-26-56 DOD 12-8-07 Jane’s son & named beneficiary
June Doe DOB 8-18-56 John’s wife and named beneficiary
Jane had a traditional IRA. She had two named beneficiaries, John and his sister. They split the account. He established a beneficiary IRA titled:
IRA FBO John Doe, XXX as Custodian B/O Jane Doe Deceased.
I don’t know how this was done, but John apparently took his RMD’s from the account from 1999 to 2006. John fell seriously ill in the second half of 2007. He failed to take a RMD before his death for 2007. His beneficiary also failed to take a RMD in 2007.
It is now 2008, June Doe comes to me looking for advise. I am pretty sure a RMD was due in 2007. I think we should take one now and write a letter to the IRS explaining circumstances and asking for forgiveness of penalty due to the circumstances. I know the single life expectancy table should be used and to subtract one each year and the distributions can continue through John’s original life expectancy.
Now I notice the new account their broker had set up for June. It is titled:
IRA FBO June Doe, XXX as Custodian B/O John Doe Deceased.
Is this the correct way to title the account for June as the beneficiary’s beneficiary? Was a RMD due in 2007? Would you take it now and ask for penalty waiver?
Your wise counsel would be appreciated.
Doug Oliver, CFP CRPS Elite Member
Permalink Submitted by Alan Spross on Sun, 2008-02-24 23:50
Doug,
I agree that June should take the 2007 RMD soon if not now, and the request to excuse the penalty should be filed with Form 5329 on John’s final return. The explanation should certainly result in the penalty being excused. See p 6 of current Form 5329 Inst, “waiver of tax”, as some elements of the provision are new.
You are correct that June should continue the RMD schedule used by John and if the final divisor for his RMD for 2007 is correct, then hers would be 1.0 less for each year following.
As for proper registration of successor beneficiary interests, reference to the original owner should continue as before and either June’s name substituted for John’s or her name added to the string, eg “June Doe as successor beneficiary to John Doe, deceased as beneficiary of Jane Doe deceased 5/6/99”. The IRA custodians seem to insert their names in various order in the title, and I do not think that order matters with the IRS. However, although IRS Revenue Procedure 89-52 still applies to 1099R and 5498 reporting, it DOES not mention successor beneficiaries. It is more important to continue reference to the original IRA owner than a deceased beneficiary since the original owner’s status determines the RMD schedule. Accordingly, I think that if the custodian not going to opt for showing all 3 because their systems do not support it, then John is the one who should be dropped from the registration.