9/30 or 12/31 Deadline for Inherited IRA Direct Transfer

Submitted by David Dunn on Wed, 2018-08-15 22:33

Facts: IRA owner, age 80, died May 2017. IRA owner had five equal beneficiaries: his wife (from second marriage) and four kids from his first marriage. One of his four kids is mentally disabled–assume this child’s name is John Doe. Surviving spouse is 68.

IRA Owner worded his primary beneficiary designation as follows: His wife by name, his three kids by name, and The John Doe Trust. The John Doe Trust was a testamentary trust that was contained in the Last Will of the IRA Owner who died.

Each IRA beneficiary intends to transfer their 1/5 share directly from the existing deceased IRA into a Traditional IRA for the spouse and an inherited IRA for the four kids.

it is understood that each of the four kids need to withdraw their 2018 IRA RMD by 2018-12-31 from their inherited IRA accounts.

His wife and one of the kids has already transferred their 1/5 share into their IRA accounts.

My question is in regard to the three remaining kids who have not yet transferred their 1/5 share to their inherited IRA accounts.

For the three remaining kids, is the deadline to transfer their 1/5 share to their inherited IRA September 30, 2018 or December 21, 2018.

If the answer is December 31, 2018, then what is the significance of the September 30 “Beneficiary Designation Date” deadline?

Thank you for your help.



Submitted by Alan - IRA critic on Thu, 2018-08-16 01:11

  • The 9/30 “beneficiary determination date” is simply the deadline to remove a beneficiary from consideration in determining the applicable RMD distribution period. This is typically performed by filing a qualified disclaimer or distributing the entire interest of a beneficiary. The full payout typically occurs with a charitable beneficiary. However, the 12/31 date determines how the separate account rules affect the beneficiaries that remain as of 9/30. 
  • Your example contains 3 different types of beneficiaries – spousal, non spousal, and non individual. The testamentary trust is particularly critical, because if 12/31 passes with no action, all the beneficiaries will have to base RMDs on the oldest beneficiary, and the trust beneficiary only has an age if it is qualified for look through treatment. If so, then the oldest beneficiary of the trust applies to the trust and the other individuals determined by their ages. Of course, the spousal beneficiary has their own better option, as she can roll her share into her own IRA at anytime and use the Uniform table as an IRA owner.  If the trust is NOT qualified for look through and 12/31 passes without action, then the remaining life expectancy of the decedent applies to all beneficiaries.
  • To avoid potential issues of the trust status, the individual non spouse beneficiaries should create separate accounts by the 12/31 deadline as that will allow them to use their own life expectancy for RMDs. And due to the age of the spousal beneficiary, she should do the spousal rollover ASAP even though there is no deadline for doing that. If she passed while taking beneficiary RMDs, her own beneficiaries would not get a new stretch at her passing.
  • Again, because of the complexity and contingencies involved here, the non spouse beneficiaries should be sure to get those separate account created well before 12/31 arrives. 
  • Finally, the decedent’s 2017 uncompleted RMD becomes a joint responsibility of all beneficiaries and should have been distributed by the end of 2017. If not, it still needs to be distributed this year and a 2017 Form 5329 filed by each beneficiary to request waiver of the penalty for not completing the decedent’s RMD on time.

Submitted by David Mertz on Thu, 2018-08-16 02:56

Since the question is about deadlines with respect to death of the participant in 2017, for the trust to be qualified for look-through the beneficiary documention with respect to the trust must be provided to the IRA custodian no later than 10/31/2018.

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