Could a requested but delayed RMD be considered a “deemed RMD”?
A married man is 80 and takes his RMD from his 2 Vanguard TIRA’s each Dec. 20. The beneficiary of his TIRA 1 is a university, the beneficiary of his TIRA 2 is his wife.
He expects that if his death is prior to Dec. 20, the university will complete its paperwork and Vanguard will process it so that his TIRA 1 assets are distributed to the university by or before 12/31 of the year of his death. If so, the distribution will cover his RMD for that year and his wife who will assume the TIRA 2 can wait to the year after his death to take her first RMD from that TIRA 2.
Q. 1: If his death is in late November and if despite prompt instructions given to Vanguard and to the university to act quickly, the TIRA 1 distribution to the university is not actually issued by Vanguard until January 3 of the year after his death because of school holidays, winter weather, etc., could this late RMD be claimed to be a “deemed RMD” for the year of the owner’s death or would it be subject to a 50% penalty because it was not distributed by 12/31 of the year of his death?
Q. 2: What if anything would be helpful to avoid the penalty, perhaps by strengthening the “deemed” nature of the TIRA 1 RMD?
Q. 3: If there is a 50% penalty, would it come from the university’s inheritance or from where?
Permalink Submitted by Alan - IRA critic on Mon, 2015-11-02 03:30
It is entirely normal for an RMD not to be completed in the year of death and then the RMD become the responsibility of the beneficiary(s). Since the university will take a lump sum distribution anyway they should file a 5329 and request the penalty waiver instead of the wife, but the wife needs to know that this is being done in order to relieve her of the same responsibility. In other words, the year of death RMD can be completed by ANY beneficiary but it still is a joint responsibility, so some coordination must take place between the university and the surviving spouse. There is no such thing as a Deemed RMD. There is either an actual timely RMD or a late RMD along with the 5329 waiver request by the beneficiaries that took the late RMD.
Permalink Submitted by fairira on Mon, 2015-11-02 19:00
Thank you, Alan, for your as-always helpful response.I would further appreciate your thoughts on these questions.1: Should the university use a Form 5329 for the year of the owner’s death and not for the next year when they receive the distribution?2: Would the very first line of Form 5329 give the university name and its TIN?Q. 3: Since it is best to send the stand-alone Form 5329 to the IRS office which grants or denies the waivers, how would the university (which is in Chicago) determine this?Thank you again.
Permalink Submitted by Alan - IRA critic on Mon, 2015-11-02 20:24