RMD penalty for spouse of deceased
A 73 year old dies in 2021 before taking his 2021 RMD. His beneficiary spouse is under age 59. She rolls over his IRA to her own. I understand that she will now have to withdraw his RMD amount by the end of the year. The advisor’s info is that the IRA custodian will issue the 1099-R coded as a premature distribution 1, which would trigger the 10% penalty. Any recourse here?
Permalink Submitted by Alan - IRA critic on Wed, 2021-12-01 16:59
Are you sure he did not pass prior to his RBD? If so, no year of death RMD is required. If he passed on or after the RBD, she should have withdrawn the RMD while the IRA was still inherited, and there would be no penalty. As is, if the RMD is required, there is no solution to the penalty other than the usual early distribution exceptions.
Permalink Submitted by David Mertz on Wed, 2021-12-01 20:10
Assuming an RMD was required, if the movement of the funds from the decedent’s IRA to the surviving spouse’s IRA was done by distribution (code 4) and rollover rather than by a non-reportable trustee-to-trustee transfer or retitling, the amount that was RMD would have been ineligible for rollover and would constitute a regular contribution that could be distributed as a return of contribution. That would result in an early-distribution penalty only on any earnings required to accompany the returned contribution. If the funds were instead moved by trustee-to-trustee transfer, I agree that the entire RMD distribution would be an early distribution.