beneficiary IRA

Submitted by Alan Myers on Thu, 2023-06-29 16:45

I have a client that inherited her Mom’s IRA. Mom died in March 2021 and my client initially opened the beneficiary IRA at another firm. She took no distributions in 2021 or 2022 and transferred the account to me in January 2023. We have no idea if Mom took any distributions from the IRA prior to her death (Mom was 86 at passing so had to take an RMD). We also have no idea of the account value of Mom’s IRA as of 12/31/2020 to determine an RMD for Mom for the year of her death, assuming that she had not taken one. It is possible the firm that held Mom’s IRA withheld the RMD before transferring the balance to the beneficiary IRA but I am having the client check on this to make sure.

My question – do we need to take an RMD for last year as well as this year? I know there were issues around the IRS rules on whether or not RMDs were required on beneficiary IRAs that were not clarified until late 2022 or early 2023 and there was a bit of “fuzziness” around the issue of whether the IRS was enforcing RMDs prior to the clarification of the rulings (at least, it was a bit fuzzy to me, which is why I am reaching out to higher minds and better informed people to make sure that I do what is right for my client).

Thanks!
Alan Myers



Submitted by David Mertz on Thu, 2023-06-29 17:09

  • “Is it possible the firm that held Mom’s IRA withheld the RMD before transferring the balance to the beneficiary IRA?”  An IRA custodian has no authority to make an IRA distribution absent a request to do so, so unless the client made such a request, the firm should have made no distribution prior to the transfer.  (The answer would be different if the mother’s retirement account was a qualified retirement plan like a 401(k) rather than an IRA.)
  • The client should determine if the mother’s 2021 RMD was completed and, if not, complete the 2021 RMD now and file 2021 Form 5329 requesting waiver of the excess-accumulation penalty.
  • The client is subject to the 10-year rule and under the proposed regulations is also subject to annual RMDs.  However, the IRS has waived the penalty for failure to take the 2022 RMD under these circumstances, so annual beneficiary RMDs only need to be taken for 2023 and beyond and the account fully drained by the end of 2031.  Still, it might make sense to take more than the RMD each year to avoid a large taxable distribution in year 10.

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