Spousal RMD crossing over a year
RMD eligible client dies in late 2020. RMD eligible spouse is beneficiary and takes IRA account as her own in mid January, 2021. She has no 1/1/2021 account balance upon which to calculate RMD. Does she have no 2021 RMD, or must she calculate the RMD based on the account value while still registered under her husband’s name as of 12/31/2020? Upon transfer, mutual fund company did not pay out an RMD, 100% of the account was transferred.
Permalink Submitted by Alan - IRA critic on Sat, 2021-11-20 03:53
She must use the 12/31/2020 inherited IRA value to calculate her 2021 RMD using her age as the IRA owner in 2021. Being an IRA, the custodian has not authority to force out an RMD, unlike qualified employer plans. But you ask a good question because the IRS issued material fails to clarify the account balance question. The Regs and Pub 590 B just say that for RMD purposes in any year after the year of death, a surviving spouse who becomes the owner is treated as owning the IRA for the entire year. I guess they think that inherently means that the prior year end balance applies and it does, but they leave that question hanging when it should be so stated.
Permalink Submitted by David Pratt on Thu, 2021-11-25 01:40
Alan: Thank you so much for your insights and the cite – very helpful. Happy Thsanksgiving! Dave Pratt
Permalink Submitted by David Mertz on Sat, 2021-11-20 12:42
CFR 1.401(a)(9)-7 addresses the adjustments to the transferee account balance needed for calculating the RMD. In this case, the transferee plan’s 12/31/2021 balance ($0) is to be increased by the amount received in the transfer (the 12/31/2020 balance of the transferor plan). The result is that the spouse must calculate the 2021 RMD as owner based on the 12/31/2020 balance of the inherited IRA. I agree that CFR 1.408-8 and Pub 590-B fail to make this clear.
Of course the balance used to calculate the RMD of the inherited IRA is to be decreased by the amount transferred, so in this case there is no 2021 RMD to be taken from the inherited IRA account which no longer exists. (This adjustment makes more sense if less than the entire account balance is transferred to the spouse, although I don’t know of any reason that the spouse would want to transfer less than the entire balance.)