Owner died before 2010 RMD
My client died recently before taking his 2010 RMD. His spouse is only 57.
We are planning to do a spousal rollover. The custodian has told me that we can’t take a distribution from the original IRA and must take it from the spousal IRA. But if we do, will the distribution be subject to the 10% early distribution penalty because she is 57?
The custodian advised that on the form for the distribution (from what would now be the spouse’s IRA) in the reason for distribution section we would check the box for “death distribution” so then the distribution wouldn’t be subject to the penalty.
Does this seem right? Is there a better way to handle this?
Thanks,
Kathy Stevens
Permalink Submitted by Jose Morales on Thu, 2010-09-02 15:56
If you are doing a spousal rollover you cannot rollover the RMD amount. If the custodian is telling your client’s spouse to rollover the full amount and then take the RMD, they are wrong. You could simply deposit the funds into a personal non-IRA account and then rollover the amount that does not include the RMD, although it would be must easier to just have the custodian provide her with two checks so you don’t have to add an extra step.
Has the custodian explained why they “can’t” allow the spouse to take the RMD from the deceased’s account? Could there be some miscommunication? Possibly they think that your client’s spouse wishes to have the distribution taken from the deceased’s account in order to avoid having the distribution report under her SSN? If that is the case then maybe this can be resolved by letting them know that you understand the distribution will be reportable to the spouse, not the deceased? Or maybe they have some legitimate system limitation that prevents them from taking the distribution directly from the original IRA and they must first set up an inherited IRA in order for the distribution to be reported correctly? I wouldn’t accept their reply without some further probing.
Permalink Submitted by Kathleen Stevens on Thu, 2010-09-02 16:22
Thanks for your reply.
You are stating what I thought was correct. Do the RMD first, then the rollover. Basically the custodian told me “Funds can’t be taken from a dead person’s account” when I asked them if the wife should sign on the withdrawal form for the RMD.
The client also has another IRA where his 2 children are the beneficiaries. For that I was told to open IRA-BDA accounts, and then take the RMD – I guess 50% of the RMD from each one. Is that okay or a problem also?
If that is ok, is that a solution for the wife, too? Open a IRA-DBA, take the RMD, then do the spousal rollover? Seems like too much paperwork.
Kathy
Permalink Submitted by Jose Morales on Thu, 2010-09-02 18:31
What they probably meant to say was “a dead person can’t take an IRA distribution” which is true. However, a beneficiary can take a distribution from the account of the deceased IRA owner and have that distribution reported to the beneficiary. It may be that there is a system limitation that does not allow them to have the distribution report to the beneficiary’s SSN unless it is first placed in an inherited IRA. That does add an extra step, but the alternative is also to simply deposit the funds into a checking account and then rollover only the amount that does not include the RMD.
As for the other IRA in which the children are the beneficiaries, the funds can be tranfered to the inherited IRAs and the RMD can be taken from them, 50/50.
Permalink Submitted by Alan Spross on Thu, 2010-09-02 19:09
Sounds like the discussion needs to be elevated to a more experieced rep with the IRA custodian. This one does not seem to realize that a spouse beneficiary does not have to do a rollover and can maintain the IRA in inherited status. And perhaps some of the balance should be kept in inherited form until she turns 59.5 considering her needs and the RMD requirement that goes along with keeping some or all in inherited form.
Permalink Submitted by Kathleen Stevens on Thu, 2010-09-02 19:26
Alan-oniras,
Yes, the rep in this case was not experienced with this topic. And because somewhere the word “taxes” slipped out of my mouth, he kept repeating that they could not give tax advice and I should tell the client to contact her tax advisor. When all I was asking was how to get this RMD.
I agree with you that perhaps some or all funds should be kept in the inherited IRA in case she needs money before 59.5, that’s a conversation we need to have with the spouse.
Thanks.
Permalink Submitted by Shahpar Naghshineh on Thu, 2010-09-02 20:56
My client inherited her spouse’s IRA and she put the money into her own IRA and she wants to know since husband passed in 2010 and did not satisfy his RMD does she have time till December 2011 to satisfy the RMD. I know I have heard and read in publication 590 that technically beneficiary has a year from date of death to satisfy the RMD for the deceased. is that true
Permalink Submitted by Alan Spross on Thu, 2010-09-02 21:47
No. The RMD should be distributed by the end of the year in which the owner died (End of 2010 in this case). But this deadline is missed more often than not, so the RMD just needs to be taken out as soon as it is discovered if delinquent. A 5329 should be filed to request the penalty be excused and the IRS typically waives the penalty.