Year of Death RMD – can spouse take from her account

Submitted by Mark Perlin on Wed, 2016-12-21 17:44

I need some help with an unusual situation. My 85 year old friend who was blind died on 11/2116. His wife, is also 85 and blind. She was in rehab and hospitalized until a few days ago. Both her and her husband have an IRA account in the same mutual fund and were scheduled to receive their RMD on 12/1/16. I first met them when I started as a volunteer reader with the Lighthouse in 1990.

She received her RMD. However, since the mutual fund was notified that he died before the RMD was paid they did not make the payment. Because the wife was in rehab and hospitalized she was just able to be in a position
to sign the paperwork to assume her husbands IRA – she is the sole beneficiary and to authorized a distribution from her account for the amount he should have received.

The mutual fund has advised us that they because it is so close to year end that they do not believe that they will be able to process the transfer of the husbands IRA to the wife’s already existing account under the assumption method. They would then transfer the funds in 2017.

They said that what should be done is the wife should take another RMD from her account for the amount that her husband would have had to take. Since there are funds available that is not an issue. However, my concern is that if the husbands account is not transferred by the end of the year will the IRS still consider his account to have failed to take the required RMD or will they consider this second withdrawal as having met his RMD requirement.

The mutual fund said they would not be able to tell us this even if we called on the last day of the year. In looking at the tax form it appears that even if you request a waiver of the penalty then you are still required to first pay the penalty and then ask for it back.

I believe that there is a reasonable basis for the waiver as the death was close to year end, the wife was hospitalized and in rehab, she is blind, etc.

I would appreciate it if you can advice me if withdrawing an amount equal to the husbands RMD from the wife’s account even if the husbands account isn’t transferred to her until 2017 will meet the requirement to avoid the penalty. If not is there anything else I can do when the mutual fund can’t give me any assurance they can get this done in time.

Thank you.

Mark Perlin



Submitted by Alan - IRA critic on Wed, 2016-12-21 21:02

  • Yes, she has more than enough “reasonable causes” for not being able to complete the year of death RMD by year end. The IRS will certainly waive the penalty if that RMD is not done this year. She would just need to file a 5329 with her return and take the RMD ASAP in 2017.
  • Since 2016 is the last year she is able to file a joint return, there may be a tax benefit to getting the RMD out this year. The IRS Regs only state that the year of death RMD must be made to “a beneficiary”. Plenty of these year of death RMDs are taken after the spouse has assumed ownership of the inherited IRA and/or rolled it over into her own IRA. So if having the year of death RMD paid this year will benefit her, there should not be a problem if she takes that distribution from her already existing IRA.
  • A few years ago the IRS changed their instructions about paying the penalty up front. Now they want the 5329 filed and they will advise if the penalty waiver is not approved. The penalty would then be due. Of course, if she takes the RMD this year from her own IRA, the 5329 will not be needed.
  • It seems a couple days premature for the custodian to not be able to process an assumption and rollover before year end presuming they have the death Cert. and paperwork from the wife. That needs to be done before any distribution can be made to her. Another factor to consider because her health is poor is that HER beneficiary will not get the life time stretch if she passes while still a beneficiary rather than as the owner. This is another reason to push the fund company if possible to complete this.

Submitted by Mark Perlin on Wed, 2016-12-28 12:31

Alan, Thank you for your response and with such detail. I appreciate it. It is hard to believe the custodian is not working to get this done in time. There are two custodians – one is a large mutual fund and the other is the City of NY’s Teacher Retirement System – TRS – as there is a large amount of money in a TDA account. The mutual fund is at least processing the withdrawal from her own account although refuses to promise it will happen this year. The TRS has not even sent the package of material for her to review and sign and it now 5 weeks since the death of her husband. There is a lesson to be learned here that maybe people should consider taking the RMD’s at the start of the year instead of the end of the year to avoid this from happening. Yes, you lose these funds from being invested but it may be worth it. Thank you again for all your help. It is really appreciated.Mark 

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