IRA Distribution
What happens if an IRA holder dies and the RMD for that year doesn’t get withdrawn? I have a client that received a check made payable to her this month for her mothers 2010 dist. Should that be sent to the estate or the bene? How and who gets to pay the tax?
Thanks
Permalink Submitted by Alan Spross on Tue, 2011-09-13 17:36
The beneficiary(s) must take the decedent’s year of death RMD as soon as the shortfall is discovered. This is often in the following year. The check and the 1099R go to the beneficiary and the RMD is reported on the beneficiary’s return.The estate is not involved unless the estate is the actual or default beneficiary of the IRA. This is logical in that whoever receives the money is responsible for the taxes on the money they received.
The beneficiary should also file a 5329 on their own return for the year of death requesting that the IRS excuse the excess accumulation penalty and state that the RMD was taken as soon as the shortfall was discovered. The IRS almost always waives any penalty. If there is more than one beneficiary, any one of them or combination can satisfy the decedent’s RMD.
Permalink Submitted by Rick Tenison on Tue, 2011-09-13 18:00
The company knew of the death last August and just now sent the RMD payment…
Permalink Submitted by Alan Spross on Tue, 2011-09-13 21:02
The distribution of RMD is not automatic even if the custodian has complete beneficiary information. For example, any IRA custodian would not be aware if the decedent might have satisfied the RMD from another IRA account since IRAs can be aggregated for RMD purposes. It is up to the beneficiary to initiate distribution of the RMD.
But this should not be a problem since the penalty will probably be waived if properly requested. Taxable income may be higher this year because the 2011 RMD will also have to be distributed before year end, but the beneficiary will also have the added funds to pay the additional taxes.