RMD in year of death
My Mom passed away in 2016. Merrill Lynch told us that the beneficiaries can take her RMD and it would be taxed to her.Since she would pay little tax as compared to the beneficiaries, we took a larger RMD. Each beneficiary got a 1099-R. Merrill Lynch is telling us that we can transfer the income back to our Mother. I never heard of this. How can that be done?
Their specific words were: “The 1099 does report that. But when each of you file your taxes, you need to report it to your mother’s SSN as RMD distribution. That adjustment is made by each of you as you file. Because you received the funds the 1099 has to list each of your SSN’s. Those distributions will still be taxed to your mother when you file as long as you (or your tax pro) report those distributions as coming from your mothers IRA.”
Is this true?
Permalink Submitted by David Mertz on Fri, 2017-01-27 21:54
This information from Merrill Lynch is totally bogus. Each beneficiary is responsible for the taxes on any distributions made to that beneficiary. It’s income to the beneficiary, not income to anyone else, and is reportable on the beneficiary’s own tax return.
Permalink Submitted by Alan - IRA critic on Sat, 2017-01-28 00:23
I would make a formal complaint to ML management over this obvious error. But first be totally sure that the person who talked to the rep was clear on both the question and the answer. ML will not take responsibility for this error unless there is some proof such as a recorded conversation. The year of death RMD can be completed by any of the beneficiaries as long as the total adds up to the incompleted amount, but they probably did not reveal that either. Finally, even if the distributions were within 60 days, the amount in excess of the RMD cannot be rolled back to the account because you are non spouse beneficiaries. At least your future RMDs will be lower as a result of the additional distribution amounts in excess of the RMD.
Permalink Submitted by Ben Meyer on Sat, 2017-01-28 03:41
ML seems to be referring to a “nominee distribution”, where a person receiving interest or divdends can transfer the reporting responsibility and tax liability to another person. However, a nominee distribution can only be performed for funds received on a 1099-INT or -DIV, and not a 1099-R. Further, no income can be attributed to a decedent after the date of death, even in the same year. This is “income in respect of a decedent”, and must be reported by the actual recipient. So, yes, the ML scheme may be motivated by a misguided desire to be helpful, but the advice is totally bogus.