inherited IRA & RMD
My folks passed away in 2016. They were both over 70½. My brother has been handling the estate. The cash & investments were distributed in 2017, but the IRA funds are being distributed in 2018. RMDs on this IRA were taken in 2016 and 2017 and I am being told that the 2018 RMD will be taken before the IRA funds are distributed. I have completed the paperwork for Vanguard (which holds the original IRA) to distribute my share of the IRA funds into an inherited IRA account. Although I am under age 70½, my reading is that I am required to start taking RMDs immediately for an inherited IRA. My question is this, since an RMD will have been taken for 2018 by the estate, do I have to take an RMD from the inherited IRA account in 2018 or can I delay my first RMD on this inherited IRA to 2019? Thanks!!!!!!
Permalink Submitted by Alan - IRA critic on Thu, 2018-04-05 17:16
Inherited IRA RMDs are complex and very detail oriented. Your post suggests that there was only one IRA account involved and direct beneficiaries were not named, therefore the estate became the default beneficiary. In that situation, since the parent passed after their required beginning date (4/1 of the year following reaching 70.5), the parent’s remaining life expectancy would determine the beneficiary RMDs, not the life expectancy of the beneficiary. However, I don’t want to assume any of this without your confirmation because there are different outcomes possible. Can you provide more information? Which parent owned the IRA and was that parent the first to pass? Who was named as beneficiary at that time? Did the surviving spouse ever assume ownership of the inherited IRA or name a beneficiary? Have you been receiving a K 1 from the estate for 2016 or 2017 IRA distributions? Perhaps other developments occurred in this process that are material, so a complete chronology will be helpful in determining exactly where you are now.
Permalink Submitted by Mike Chamberlain on Thu, 2018-04-05 20:07
Here are the details:The parent that passed first (Feb 2016) was the IRA account holder. The parent that passed second (spouse) never dealt with the IRA before passing (in September 2016). Both parents were in their 90s. There was no named beneficiary on the IRA account. Hope this helps. Let me know if more is needed.
Permalink Submitted by Alan - IRA critic on Thu, 2018-04-05 23:49
The IRA therefore went to the estate of the first parent to pass, and would pass under the will of that parent or per state law if there was no will. It may then have passed to the estate of the second parent to pass . In any event, the remaining life expectancy of the IRA owner will determine the annual RMDs, but the inherited IRA will have to be drained in a short period of time. For example, if the IRA owner would have been 92 at the end of 2016, the RMD divisor would have been 3.9 for the 2017 RMD, 2.9 for 2018, etc. The IRA would have to be drained by the end of 2020, and sooner than that if the IRA owner was older. Check Table I in Pub 590 B. Your first inherited IRA will be for 2019 and can be distributed up to 12/31/2019. That RMD will be calculated using the balance of your inherited IRA on 12/31/2018.