No Named Beneficiary, RMD Not Taken
My three siblings and I just inherited IRAs through the will of our 85-year-old mother. She did not name beneficiaries on her IRAs. She did not take the RMD in the year of her death.
My understanding is that we should open an inherited IRA titled Joan Smith, deceased, IRA for the benefit of Mary Smith, Tom Smith, Dick Smith, Harry Smith. The funds to be transferred, ONLY as a trustee-to-trustee transfer, to the inherited account. We should then take the RMD for the year of death from that account and report it as income on one or more of our personal tax returns. Do I have this right? Do we have any other options?
Permalink Submitted by Alan Spross on Mon, 2010-12-06 20:01
Sorry to hear of your loss.
FIrst, verify that the IRA account agreement default beneficiary when there is no designated beneficiary is the estate. This is likely to be the case, particularly when there is no surviving spouse. If so, and there is a will, the will and assets that pass via the will are subject to probate.
If the probate process can be wrapped up in a fairly short time frame, the executor can wait on the final RMD until after the IRA can be assigned to the beneficiaries. Once this is completed, each beneficiary can create separate accounts by direct transfer as you indicated and your mother’s final RMD can be taken equally by each beneficiary or split in different ways, including the entire amount being withdrawn by one beneficiary if they otherwise need the money. However, if the estate must stay open with no asset distributions, her final RMD should be paid to the estate and passed through to the beneficiaries on a K1.
However, note that you are not considered designated beneficiaries because you were not listed as such and you inherited the IRA through the estate. Accordingly, not withstanding the separate accounts, for your own RMDs starting in 2011 you cannot use your individual life expectancies, but must use the non recalculated remaining life expectancy of your mother. You lose most of your stretch, since the 2011 divisor will be 6.6 and is reduced by 1.0 for each year following 2011. The result is the account must be totally distributed within 7 years.