RMD after RBD with multiple beneficiares

Submitted by Annika Cushnie on Wed, 2019-07-10 16:22

I have some questions that I would like to get clarification on please. Here is the scenario:

Mom died at 90 in 2019, and 2 grown sons are beneficiaries of her large IRA. Mom died in 2019 after her RBD and was taking RMDS; however, she had not yet taken one for 2019.

My understanding is that the sons (and not the estate) each have to take 50% of Mom’s final RMD amount in the year of death (2019). Do they take this from Mom’s IRA or from their Inherited IRAs? How exactly is this processed?

They each would like to use their own life expectancy going forward for RMDs. I believe the deadline is to have the inherited IRAs established and funded before 12/31 of the year following the Mom’s death (2020). Does this mean that each beneficiary would have to start taking RMDs under their own life expectancy for 2020 and each year thereafter?

Thank you very much!
Annika



Submitted by Alan - IRA critic on Wed, 2019-07-10 18:19

  • The sons cannot complete Mom’s year of death RMD until they establish inherited IRAs, which should be separate inherited IRA accounts for each on which they name their own beneficiaries. They can then distribute Mom’s year of death RMD from their individual inherited IRAs, but since this was Mom’s RMD they can split it in any manner they wish.  If one son needs the money and the other does not, then just the one that needs it can complete the year of death RMD. Of course, they can split it if they wish, but do not have to. The year of death RMD should be completed no later than 12/31/2019 to avoid having to request a penalty waiver from the IRS. It will be issued to the respective son who will get a 1099R to report the amount they receive on their own tax return. There is no reason to delay establishing the separate inherited IRA accounts since they cannot complete Mom’s RMD until they do.
  • Their own beneficiary RMDs begin in 2020 based on their age as of their birthday in 2020. The first life expectancy RMD is due by 12/31/2020. Their respective divisors for 2020 will be reduced by 1.0 for each year after 2020. 
  • It is critical to understand that they can only move the inherited account by direct trustee transfer. They cannot do a 60 day rollover, so they need to be careful not to receive a distribution check for any more than they want to be taxed on.

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