RMD in 2013 stopped by custodian when notified of IRA owner’s dea
Here are the facts of the case:
IRA Owner: 11/20/1930 DOB 11/18/2013 DOD
IRA owner is over age 70 1/2 an is taking RMDs in Dec. 1st of each year
IRA owner dies on November 18th, 2013 without taking his RMD for 2013.
Custodian is notfied of IRA owner’s death by advisor (me) and auto RMDs are stopped.
No RMD comes out of IRA for 2013.
IRA owner’s 5 children are equal 20% beneficiaries (he is single with no spouse)
All 5 children fill out beneficiary paperwork to begin receiving their bene. RMD payments in 2014. Custodian splits the IRA into 5 equal IRAs for each child.
IRA owner puts 5 year restrictive beneficiary designaton on lump sum payments, so all children have to receive monthly RMD payments beginning in May 2104.
Custodian will not “back date” 2013 RMD payment for IRA owner in the year of his death.
QUESTION: Does an IRA owner who dies prior to taking his 2013 RMD need to take that RMD any way? IF yes, how do we get the custodian to take out the RMD proportionately?
John Ernst 413-525-5511
Permalink Submitted by Alan - IRA critic on Tue, 2014-04-08 19:11
John, the IRS Regs make the beneficiaries responsible for completing the year of death RMD. Since that RMD was for the IRA owner, the beneficiaries can satisfy it in any combination they wish but in this situation they will probably be limited to 20% to avoid accounting problems. They should also file Form 5329 with their 2013 returns to request a waiver of the 50% penalty. Due to the date of death the IRS is sure to waive any penalty. Further, if monthly distributions will not start until May, they will have to be increased to generate the full 2014 beneficiary RMD amount for each. The year of death RMD should be fully distributed ASAP so the distribution statement can be included with the 5329 requesting the penalty waiver. If the custodian questions the year of death RMD requirements, please advise. If the custodian wants to integrate the year of death RMDs into the monthly distribution amount, it may affect the IRS penalty waiver request.
Permalink Submitted by John J. Ernst on Tue, 2014-04-08 19:59
Hi Alan: The custodian, John Hancock annuities, is giving me a hard time by saying that “you sent in the beneficiary paperwork, we established the BDIRAs, and it’s too late”.Is it too late, or do we have to get an attorney involved here over a $20,000 withdrawal to satisfy his 2013 RMD. Thanks,John
Permalink Submitted by Denise Appleby on Wed, 2014-04-09 00:02
Hello -The RMD should not be backdated to 2013 ( I think that is what you are asking). It should be a 2014 distribution since it will be processed in 2014, and then, as Alan explained, Form 5329 should be filed to claim exemption from the penalty. By the way, they may be able to get around the five-year restriction depending on the te
Permalink Submitted by Alan - IRA critic on Tue, 2014-04-08 22:10
I guess this is one of the pitfalls of a beneficiary clause that is so rigid in it’s specifications that no room is left for changes. Perhaps sending them a letter signed by an attorney representing all beneficiaries that they are required to complete the owner’s RMD and it can only be distributed to the beneficiaries from their inherited IRAs or they will be assessed a 50% penalty of that required distribution. It is not clear whether Hancock’s denial is due to their interpretation of the restrictive distribution requirement or they expected the beneficiaries to have taken care of this from the prior custodian. I can tell you that many year of death RMDs are not taken out for quite some time due to delay in recognizing the requirement or delay in determining if the owner has satisfied the RMD from either the particular IRA or some other IRA. Many custodians will not accept specific restrictions such as this and require that the RMD conditions be imposed through a trust as IRA beneficiary. So while they were flexible in accepting this type of beneficiary clause, they are now unduly restrictive regarding the year of death RMD.