IRA RMD in year of death

I had a client pass away this year who was already taking RMD’s(age 74). Custodian paid out the IRA funds to the Bene IRA’s for client’s 3 children. RMD was not taken from deceased IRA prior to transfer to Bene IRA’s. The 2016 RMD amount is approx. $12,000. I believe each Bene is responsible for taking RMD this year since Custodian would not remove from deceased IRA before transfer to Bene IRA. I also realize in 2017 each Bene will take RMD based on their specific DOB. However, in 2016 should each bene take $4,000, can a bene whose income is very low relative to the other 2 take the $12,000 to satisfy RMD for 2016. Didn’t know how the IRA would track the taken RMD since it will be in bene’s SS#.



The year of death RMD (only) can be taken in any combination by the beneficiaries. There is no need for them to ratably take the RMD, and the IRS has not shown any inclination to penalize a beneficiary who takes out their share if others fall short. However, if they choose not to take the RMD ratably, they should coordinate closely to make sure the total RMD was satisfied. If the total was not distributed, no one beneficiary should fall short of a ratable distribution. Of course, each beneficiary will be taxed on the amount their own 1099R indicates was distributed to them. Finally, the decedent could have completed his year of death RMD from any of his IRAs and would not necessarily have had to take the RMD from every owned IRA.



I have the same situation with a client, or I should say, the client’s tax preparer.  Is there an IRS reference that I can relay to him to support this contention?  Or is it a matter of there being no specific IRS ruling, thereby leaving open the option of RMDs taken by one beneficiary vs all beneficiaries equally? 



The following is copied from IRA Reg 1.401(a)(9)-5 Q 4. Note that it only requires the year of death distribution to be distributed to “a beneficiary”. Since this is the decedent’s uncompleted RMD and not a beneficiary RMD, the IRS does not care which beneficiary receives it and neither should the IRA custodian:

If an employee dies on or after the required beginning date, the distribution period applicable for calculating the amount that must be distributed during the distribution calendar year that includes the employee’s death is determined as if the employee had lived throughout that year. Thus, a minimum required distribution, determined as if the employee had lived throughout that year, is required for the year of the employee’s death and that amount must be distributed to a beneficiary to the extent it has not already been distributed to the employee.



Note that when 1.401(a)(9)-5 is applied to an IRA, the word “participant” must be substituted for the word “employee”.



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