Year of Death RMD: Which Account to Take From?

Submitted by Erica Chong on Thu, 2016-12-29 02:46

Hi, all.

My ex-wife passed away in November before she took her 2016 RMD. She was over 70 1/2 years old.

2 questions:

1) The IRA company insists on rolling over the IRA to an Inherited IRA account, and THEN distributing the RMD to me from the Inherited IRA account. Do we risk incurring the 50% IRS penalty if the company does it in this order?

2) We originally thought our daughter was the beneficiary. She filled out all the paperwork weeks ago, including the request for RMD payment. The company sat on the application, and only told us that I was the beneficiary last Friday. As a result, they claim that they cannot disburse the funds until 2017. Will we have to fill out a 5329 form? Are there any other complications that will result?

Many thanks.



Submitted by Alan - IRA critic on Thu, 2016-12-29 04:02

  1. The IRA custodian is not rolling over the account, they are only retitling it with you as beneficiary. This must be done before they can accept any direction from you with respect to the inherited IRA including making any distribution to you. If they transfer the account to a different account number, you can take the year of death RMD from the new account. Even if the year of death RMD is not completed this year, because of her death late in the year the IRS will waive the penalty if you file a 5329 citing a “reasonable cause” for the delay. But do complete the year of death RMD ASAP.
  2. This provides even a better “reasonable cause” for the delay. Yes, you will have to complete the 5329 with your 2016 return. No other complications other than the RMD will be taxable to you in 2017 rather than in 2016.
  3. If she owned any other IRA accounts, she might have taken her full RMD from the other account. That is something to check out. You should also check if you inherited any basis in her IRA from non deductible contributions. If so, your distributions will be partially non taxable and you would transfer the inherited basis by filing Form 8606 to report your inherited basis in the IRA. Of course, if you were not married to her at her death, you cannot roll this over to your own IRA, and can only move funds to a different custodian by a direct trustee transfer.

Submitted by Erica Chong on Thu, 2016-12-29 16:12

Thank you for your reply!   

Submitted by Erica Chong on Sat, 2016-12-31 23:53

Question: if the paperwork for the RMD withdrawal is filed in 2016, but the custodian doesn’t cut a check until 2017, is a 5329 still required?

Submitted by Alan - IRA critic on Sun, 2017-01-01 00:06

Yes, because the custodian will not report it distributed before the date it actually was. Since it technically is late, the 5329 is needed with your 2016 return. It is only 4 lines, but what to enter is not obvious, so follow the instructions on the last page here:  https://www.irs.gov/pub/irs-pdf/i5329.pdf. Do not pay any penalty with your return.

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