RMD for deceased IRA owner w/ disclaimer
Situation: Husband (over 70-1/2) dies and wife is sole beneficiary. Wife disclaims a portion of the IRA to children who were listed at contingent beneficiaries, so there will be the spouse and 3 nonspouse designated beneficiaries. Husband had not taken RMD for year of death. Can the wife choose to take her husband’s RMD entirely out of her share so the children do not have to take a distribution in the year of death? Or does the RMD HAVE to be taken proportionately from each beneficiary’s share?
Thanks, Susan
Permalink Submitted by Alan Spross on Fri, 2007-11-09 19:26
Susan.
Assuming husband passed after his RBD (not just age 70.5), the IRS only requires that a beneficiary take the RMD requirement for year of death. They don’t care how this is apportioned between the various beneficiaries. Further, if the surviving spouse took the RMD prior to the disclaimer, the IRS has ruled that she remains qualified to disclaim. This does not apply if any amounts distributed exceed the RMD.
In this case, if the transaction order were the disclaimer first, the surviving spouse taking the full RMD next, and the creation of separate accounts last, the prior distributions and investment experience must be allocated in an equitable way to establish the beginning separate account balances. The surviving spouse’s distribution of the RMD would be allocated against her share of the separate accounts, and therefore the children would get a larger separate share. The effect would be that the entire separate share interests of the children would be totally insulated from the date of death RMD requirement.
Permalink Submitted by Susan Mims on Fri, 2007-11-09 20:14
Thanks Alan. That is what we were hoping to hear. Now, one additional question. Can the surviving spouse who is also over 70-1/2 (the husband was past RBD), can she use his RMD in year of death (2007) as a qualifed charitable contribution and avoid taxation on this amount? If this can be done, along with your first answer, it allows a large RMD to be tax free if taken entirely by the spouse and used for charity. The kids are ok with it, and don’t need money.
Thanks again, Susan
Permalink Submitted by Alan Spross on Fri, 2007-11-09 21:15
Yes, she can make a QCD that would cover the RMD if under 100,000. Attached is pasted from Notice 2007-7:
Q-37. Is the exclusion for qualified charitable distributions available for
distributions from an IRA maintained for a beneficiary if the beneficiary has attained age
70½ before the distribution is made?
A-37. Yes. The exclusion from gross income for qualified charitable distributions
is available for distributions from an IRA maintained for the benefit of a beneficiary after
the death of the IRA owner if the beneficiary has attained age 70½ before the
distribution is made.
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