RMDs made by beneficiaries
IRA owner died in 2010. Three brothers were named as beneficiaries. Oldest beneficiary is age 65. A 25%, B 25%, C 50%.
In 2011, A took a full taxable distribution. The amount distributed in 2011is greater than the total RMD required in 2011 for all three beneficairies. Are B and C relieved from taking an RMD in 2011?
Permalink Submitted by Alan Spross on Fri, 2011-06-17 17:54
Need more info:
1) What is status of the decedent’s 2010 RMD, if any? Was that RMD fully completed in 2010, or was it part of the 2011 distribution to the beneficiary?
2) Were separate accounts created for the beneficiaries prior to A’s distribution?
Permalink Submitted by Thomas Ferry on Mon, 2011-06-20 13:02
ok, thanks
No RMD was required in 2010, and none was made.
A separate decedent IRA was set up for A on 4/26/11, and a partial distribution was made. Then he completed his full distribution on 6/3/11.
B’s decedent IRA was opened 4/26/11 and received assets 4/29/11.
C’s decedent IRA was opened 6/1/11 and received assets 6/3/11.
Permalink Submitted by Bruce Steiner on Mon, 2011-06-20 18:33
How do you take non pro rata distributions before the IRA is divided? There is no executor, and the custodian might not want to track the changes in the fractional shares each time there is a non pro rata withdrawal. For example, if the IRA is payable 1/3 to each of A, B and C, and A withdraws 30 at a time when the IRA is worth 300, from that point on, the IRA should belong 7/27 to A, 10/27 to B, and 10/27 to C. The fractions would change again each time there is a non pro rata withdrawal.
Permalink Submitted by Alan Spross on Mon, 2011-06-20 22:58
The accounting issues here are more complex than the RMD issues.
The June 2004 Regulations (TD 9130), altered the 2002 RMD Regulations to allow beneficiaries of separate accounts created in the year after death to use their own life expectancies for RMDs in that year rather than waiting until the following year. It also stated that losses or gains occuring prior to the establishing of the separate accounts must be pro rated for all beneficiaries. By setting up the separate accounts by a non reportable transfer, each beneficiary must take their own RMD for 2011. B and C cannot avoid RMDs as a result of A taking a total distribution. A’s and B’s RMD was based on 25% of the 12/31/2010 account balance and C’s on 50% of the 12/31/2010 balance. Each uses their attained age in 2011 with Table I.
As for the math used by the original custodian for determining the balance to be transferred to the respective inherited IRAs, the IRS only says that gains and losses up to the date of transfers must be pro rated. I suspect that IRA custodians do not use a uniform method, but when the first transfer request is received, it would be easier for the original custodian to separate their IRA into in house separate accounts for each beneficiary at that time, ie 25, 25 and 50% respectively. Each holding in the IRA would have to be split up, so it’s fortunate that partial shares can be applied to the nearest thousandth of a share. You did not indicate if the original IRA account issued the partial distribution or whether it occurred after the separate beneficiary IRA account # was set up.
If A and B transfers out of the original IRA occurred on the same date, the amount transferred should have been identical, since they each got 25%. The balance left was all C’s share.
The reason I asked about the 2010 RMD is because a decedent frequently has not completed it for the year of death, and it must be taken out by beneficiaries in the following year. If that had been the case here, there is no clear ruling from the IRS about which beneficiary must take it or if it is deemed distributed prior to the current year beneficiary RMDs, so in that case I think A could have satisfied the year of death RMD individually, had there been one, leaving B and C with only their respective 2011 RMDs.