Missed RMD on Deceased Husband IRA (post 70 1/2) by wife as inherited IRA (not yet 70 1/2)
FACTS:
Husband dies at age 72 in 2017 – his RMD is taken for that year. $600,000 IRA.
Wife is sole beneficiary, his IRA title changed as beneficiary IRA FBO wife. She was only 67 years old in 2017.
We just met her and noticed no RMD was taken for 2018 (nor so far in 2019). 2018 should have been based on his life expectancy as bene. IRA.
We don’t know why IRA was not transferred into Spousal IRA to solve this problem. Mistake/oversight most likely.
QUESTION 1: If we transfer in 2019 into Spousal IRA, will she still have to take 2019 RMD since it was a bene IRA for first 9 mo’s of 2019? Her regular RMD’s are due until 2021 based on her own age.
We will advise her to take the 2018 RMD now and send a letter to IRS explaining situation and asking for relief from 50% penalty.
QUESTION 2: Does anything sound incorrect and/or is there anything else we should be considering to help this woman in this situation?
Thank you!
Permalink Submitted by Alan - IRA critic on Thu, 2019-09-26 22:30
Well, it is HER IRA now by default. By failing to take her beneficiary IRA RMD for 2018 by the end of 2018, she defaulted to ownership of the IRA. She is then treated as having owned the IRA the entire year of 2018. Since she is not yet 70.5 by the end of 2018, she now has no RMD due for 2018, 2019, or 2020. There is no need to take any distribution now unless she needs the money. She should advise the IRA custodian what has happened and have the account re titled to show her as owner and to reflect the ownership that she has already attained by default. The IRA custodian will probably transfer the balance to a new account rather than changing the title on the present account. This is not a reportable distribution and will not use up her one permitted rollover. If there was any IRA basis in the account she inherited from her husband, that transfers to her IRA and she should file Form 8606 on her IRA to record the amount of basis. If she already has her own IRA she could do a direct transfer to combine the accounts into a single IRA, and update the combined basis, if any.
Permalink Submitted by Robert Huntley on Fri, 2019-09-27 10:43
Thank you Alan. Much appreciated. What triggered the concern was her IRA statement (Schwab custodian/titled as bene IRA) had a typical alert that she was due to take an RMD in 2019 of nearly $29,000. That led us to conclude it was still subject to RMD’s as titled.