Failure to take RMD in year of death

Submitted by Len Metkowski on Wed, 2017-01-18 16:41

Client, age 80, died in 2016 without taking full RMD. Both of clients children (2) are named beneficiaries. In 2017, Clients IRA will be transferred equally and each child will own an inherited IRA. One child is in top tax bracket, the other child in low tax bracket. Must the 2016 make-up distribution (made in 2017) come equally from each child’s inherited IRA account or may all of it come from the child in the lower tax bracket?



Submitted by Alan - IRA critic on Wed, 2017-01-18 20:15

SInce this is the decedent’s year of death RMD, it can be divided up any way the beneficiaries choose, so the lower bracket beneficiary can take the entire balance of the 2016 RMD. Since they were jointly responsible to complete this in 2016, they each need to file a 5329 requesting a penalty waiver for reasonable cause. The lower bracket beneficiary can of course state that the distribution has been completed and the other can state that the other beneficiary completed the decedent’s RMD. The IRS will almost certainly waive the penalty, but each 5329 should use the best “reasonable cause” that applies. If client died late in 2016, the date of death alone is a good reason that there was not time to determine the RMD status, have the account re titled and take the RMD.

Submitted by Len Metkowski on Thu, 2017-01-19 20:05

Additional facts: In addition to failing to satisfy 2016 RMD requirement, Decedent Taxpayer also failed to meet 2015  RMD requirement. Must each beneficiary equally satisfy the 2015 shortfall or may just one beneficiary (the lower tax beneficiary) satisfy the shortfall similar the the treatment pertaining to the 2016 shortfall. 

Submitted by Alan - IRA critic on Thu, 2017-01-19 22:50

It is extremely unlikely that the IRS will levy against the decedent’s estate for delinquent RMD prior to the year of death, but in a case such as this if any beneficiary feels more comfortable taking out the 2015 RMD, they can certainly do so. But a 5329 would have to be filed so the IRS would know that the distribution is allocated to 2015, not just a larger amount that a beneficiary felt they needed. That said, the IRS Reg posted below only specifically makes beneficiaries responsible (jointly not individually) for the year of death RMD, not for prior years.

Q-4. For required minimum distributions during an employee’s lifetime, what is the applicable distribution period?A-4. (a) General rule. Except as provided in paragraph (b) of this A-4, the applicable distribution period for required minimum distributions for distribution calendar years up to and including the distribution calendar year that includes the employee’s date of death is determined using the Uniform Lifetime Table in A-2 of § 1.401(a)(9)-9 for the employee’s age as of the employee’s birthday in the relevant distribution calendar year. 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.

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