Inherited IRA RMD Complication

Submitted by Deena Lyssy on Sat, 2016-04-16 14:38

I am the beneficiary of a Traditional IRA from my Mom. She passed away in late November 2015 and was 80, so already taking RMDs (this was originally my Dad’s IRA that was put in her name after his passing). I notified the credit union (custodian) of her death in December 2015. She had already taken her RMD for 2015. She had it set up with the credit union for her RMDs to be figured and automatically withdrawn in January of each year.
The custodian went ahead and withdrew her RMD for 2016 in January 2016, even though she was deceased. The IRA is still with the custodian as I’m having trouble transferring it. They have not been easy to work with, refusing to change the title of the IRA, which is making it difficult to transfer to another custodian, wanting to just send me a check for me to send to second custodian, etc.
I initially requested that the RMD for 2016 be reversed since she was deceased at that point, so I could do it after it was transferred to another custodian and titled properly – they refused, because she had it set up to be withdrawn automatically.
They are telling me that it will be reported to the IRS for 2016 under my SSN.
My understanding is that I have to take my first RMD for this inherited IRA in the first year following her death, or I will have to take it all within 5 years.
I am concerned that if the custodian reports this RMD for 2016 incorrectly, it appears that I would be required to have it distributed within 5 years, vs being able to stretch it over my life expectancy. Will not receive 1099-R to see how they actually report this RMD until 2017, which will be too late to take the first-year RMD that is required.
If it is reported incorrectly, or in my Mom’s SSN, would I have any recourse? Should I consider going ahead and taking another RMD for 2016 (even though it would be painful) just to make sure that the stretch option is available to me?
Thank you for any input/thoughts, and apologies for this being so complicated.



Submitted by Alan - IRA critic on Sat, 2016-04-16 20:32

  • Your first action was correct. Once your mother passed, her automatic RMD instructions were void because as of her death her beneficiary (you) effectively owns the IRA and all distributions are to be made to you. I assume that you have otherwise filed the papers and death cert such that the CU recognizes you as beneficiary since they plan to send you the 1099R reporting the January distribution as if it had been paid to you. This distribution would have been larger than your RMD, so by not accepting the check back they forced you to take a larger distribution than necessary, but as it is your RMD for 2016 has been completed. Are you the executor also?
  • The 5 year rule never applies when the IRA owner passes after their RMD beginning date, so you will be taking life expectancy RMDs based on your age as of 12/31/2016. Again, it sounds like they are going to report the RMD in the same manner as if it had been sent to you, so you will have no RMD problems with the IRS. But you may need to confirm that the 1099R will be sent to you and show your SSN if you want to be sure what to expect come next January. Otherwise, no need to take any more money out till 2017.
  • In summary, as things stand I don’t see any issues with the IRS or your RMDs. But their anti consumer attitude has resulted in the distribution being more than your actual beneficiary RMD and may also result in issues getting the funds into your own bank account. You will have to make the decision whether to push back on their refusal to accept the check back  as they should or deal with the inconvenience and larger than necessary distribution. I would seriously consider doing a direct transfer to another inherited IRA custodian when you get the time.

Submitted by Deena Lyssy on Sat, 2016-04-16 22:23

*Yes, I am a co-independent executor.  The money was transferred from the IRA to a share account that is at the same credit union – I am the beneficiary on the share account account also, so ultimately the distribution will be disbursed to me along with the share account, but, as you said, a larger distribution than would have been required (approx $1200 more).  *They are telling me that the 1099R will be sent to me, and will show my SSN, but I cannot get them to give me anything in writing to that effect – will only find out when the 1099R shows up in 2017.  Re the distribution after she was deceased – I have gone ’round and ’round with them trying to get them to reverse the distribution – it would simply require them transferring it back into the IRA account from the share account – they won’t budge.  I am thinking that I will contact their plan administrator directly (Ascensus) and see if anyone there will help me out with getting the Jan 2016 RMD reversed.  I am working fast and furious on getting everything transferred to another custodian, but have run into all sorts of problems because the CU will not change the way it is titled.  It is almost as if they are holding it hostage – I am not eligible to open an account there (my folks were eligible because of my Dad’s employment affiliation), but they are making it extremely difficult to get it moved.  Thank you so much for the very informative and rapid reply!

Submitted by Alan - IRA critic on Sun, 2016-04-17 00:11

They obviously do not know what they are doing. Is this a very small CU, perhaps lacking experienced staff regarding IRA regulations?  They have to properly title this showing both your mother’s name and your name as beneficiary and show this on Form 5498 or equivalent statement showing that an RMD is required and the year end value of the IRA. Be sure to make it clear to them that they are NOT to issue any distributions because a non spouse inherited IRA distribution cannot be rolled over and would irrevocably taxable to you in a single year. This behavior for inherited IRAs is sadly indicative of the fact that many custodians do not want inherited IRAs because they are wasting assets. This is particularly true if the owner did not name a beneficiary and the estate became the beneficiary but less common in your situation. Given these circumstances I would not worry too much about the RMD if they make out the 1099R to your mother as the IRS would almost certainly waive any penalty if it came to that and you explained how the custodian handled this.

Add new comment

Log in or register to post comments