RMD when Inherited IRA not established in year of death

Submitted by Mark Anderson on Mon, 2017-12-04 16:51

My father died in August 2016 at age 94. He had a pension with a death benefit that could be rolled over into an inherited IRA or cashed out by the beneficiaries. My 2 brothers and myself were named beneficiaries with equal shares. We dithered what to do with the money and only came to a conclusion in November 2017 with one brother cashing out and the other brother and myself opting for an inherited IRA. Do the 2 of us with the inherited IRAs each need to take one RMD or 2 RMDs by December 31, 2017? In other words, does the requirement for making an RMD start with the year of death or the year of establishing the inherited IRA? If it makes a difference, my father did take monthly distributions of his pension in 2016 until his death.

As of December 31, 2016, I was 61. I am currently set up to make 1 RMD before December 31, 2017 based on single life tables for a 62 year old.

If I need 2 RMDs, I assume that I missed the deadline for the age 61 RMD. How do I fix that? If there is a penalty, does it have to come out of the inherited IRA and/or do I wait to hear that the penalty is owed by the IRS?



Submitted by Alan - IRA critic on Mon, 2017-12-04 18:09

  • The beneficiaries are jointly responsible for completing the year of death RMD by the end of that year. While the brother that cashed out has withdrawn enough to complete both the year of death RMD (although late) and his own beneficiary RMD for 2017, he should file Form 5329 requesting that the penalty for not completing the year of death RMD in 2016 be waived. The IRS will almost certainly waive the penalty if the 5329 is filed correctly citing a “reasonable cause” for the delay.
  • The other two beneficiaries need to do a direct trustee transfer into inherited IRAs for each by the end of this year. That will allow each beneficiary to use their own life expectancy from Table I for beneficiary RMDs and the required amount needs to be distributed by 12/31. 
  • Therefore, you only need to take the one RMD as stated. Your divisor will be 23.5 for this year, 22.5 for 2018 etc reducing the divisor by 1.0 each year. The balance you will use for the 2017 RMD is 1/3 of the total inherited IRA balance on 12/31/2016. For later years, just use the prior year end balance of your own inherited IRA. You have no 2016 beneficiary RMD, and your brother that cashed out has completed the year of death remaining RMD from 2016.
  • Note that since neither of the two of you took out your share of the year of death RMD because your brother took out the entire shortfall, you still have a very minor risk of an IRS inquiry IF your brother does not file the 5329 to get the penalty waived. You should make sure he files the 5329 for everyone’s benefit. If he does not file one, you might want to file your own 5329 stating that your brother did complete the year of death RMD in 2017 by taking a full distribution of his share.

Submitted by David Mertz on Mon, 2017-12-04 18:40

Given that the plan was a pension (DB plan), it seems that, upon the death of the participant, the obligation of the participant to receive distributions would have ceased and there would be no unsatisfied portion of a year-of-death RMD to complete (and no need to for anyone to file a 2016 Form 5329 to request a waiver).

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