Return of Excess for a Deceased Client

Submitted by Kevin O'Hearn on Fri, 2022-10-21 20:45

Hello, I have a who is deceased but it has come to light that they over contributed to their IRA in 2021. The client passed in 2022 and the account is now in a IRA BDA for the beneficiary. Since the account has now been transferred to the beneficiary would we just need to take the funds from the beneficiary account to satisfy the excess contribution?

Thank you.



Submitted by Alan - IRA critic on Fri, 2022-10-21 22:55

  • If client had the income, the contribution would be non deductible, and if they did not have sufficient earned income, the IRS would likely expect the executor to pay the 6% excise for 2021. 
  • I am not aware of specific guidance regarding beneficiary responsibility for decedent’s excess contributions. If the beneficiary is under the 10 year rule without annual RMDs, they could take a distribution in the amount of the excess, and complete a 5329 as if they were the owner. If owner passed after RBD and annual RMDs are required, the beneficiary would have to complete the RMD in addition to removing the excess amount, as the removal of excess cannot also satisfy an RMD. Separately, if the client passed after their RBD, the beneficiary is also responsible for completing client’s 2022 RMD.

Submitted by David Mertz on Sat, 2022-10-22 00:15

  • Assuming that this is truly an excess contribution and not just a nondeductible contribution, the executor should file 2021 Form 5329 for the decedent and pay the 6% excess contribution penalty.  The tax software that I am familiar with would also report this on 2021 Form 8606 as a nondeductible contribution.
  • An excess contribution would be nondeductible on the decedent’s 2021 tax return and, if the entire contribution for the year was less than the regular annual contribution limit or was an excess amount rolled over from and employer plan due to incorrect information from the plan, the distribution of the excess paid to the beneficiary would be a nontaxable distribution of the excess-contribution basis (not subject to prorating). Reporting this would require an explanation statement.

Submitted by Alan - IRA critic on Sat, 2022-10-22 15:05

Solutions can be affected by the details. Was the excess due to having no earned income or contributing more than the contribution limit? If no earned income, did client happen to have earned income in 2022 before passing to which the excess from 2021 could be applied?  Did client make a new contribution for 2022? DId client deduct the 2021 contribution on the 2021 return?

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