IRA distribution at death…
Client (non-spouse) is receiving the proceeds from her father’s pre-tax IRA as the primary beneficiary. When is the the client responsible for paying the income taxes on the distribution?…when the IRA custodian delivers the check or when the check is cashed by my client? My client is wondering whether to wait to cash the check after Jan 1.
Permalink Submitted by Alan Spross on Thu, 2009-12-17 18:08
Dave,
It does not matter when she cashes the check. The 1099R will be issued for the year the check is issued, so if the check is issued in 2009, it will be taxable in 2009. If client does not want to be taxed in 2009, she should not request the distribution until January. There is no RMD this year for her unless her father had failed to take his RMDs for 2008 or prior years. And even knowing that, she could delay the RMD until 2010 because she would be asking the IRS to waive the penalty anyway, and they will grant the waiver.
It may be better not to take a lump sum distribution from this account unless she needs the money badly. She could stretch it over her life expectancy if she wanted, but once she receives a check, it cannot be rolled over and will be irrevocably taxable. Bank IRA custodians sometimes press beneficiaries to take a lump sum because they do not like to set up beneficiary accounts.