Death Before Taking RMD in year
My mom is 79. She has a traditional IRA. She has been taking RMDs as required. My sister and I are equal beneficiaries of the IRA. If mom were to die before taking her RMD in a particular year, how do the beneficiaries deal with the missing RMD for that year, in particular to avoid any penalties?
Permalink Submitted by Alan Spross on Mon, 2008-02-11 19:58
To the extent there is a shortfall in a decedent’s RMD for the year of their death, the beneficiaries must withdraw the shortfall prior to year end. This distribution will be taxable to the beneficiaries.
While there is no requirement for each beneficiary to take out their proportionate share, this is NOT a requirement. For example, one beneficiary may want access to the funds, and as a long as they withdraw enough to cover the RMD, the other beneficiary need not take a distribution until the year following death. The size of the respective remaining share of the IRA would then need to be adjusted to reflect the withdrawal.
Note that if the decedent dies late in the year and their RMD shortfall is not noticed until after year end, the beneficiaries should make up the RMD ASAP in the later year, and then attach a 5329 to the decedent’s final return requesting waiver of the excess accumulation penalty.
Permalink Submitted by Walt Meier on Tue, 2008-02-12 03:02
In the case where the IRA owner dies without making any RMD during the year, and the beneficiaries have time to establish inherited IRAs and make the RMD during the same year, is it correct that a 5329 must still be filed with the original IRA’s owner final tax return to explain why the original owner didn’t make a RMD but the beneficiaries did, and therefore (presumably) the IRA owner wouldn’t have to pay any penalty?
Permalink Submitted by Alan Spross on Tue, 2008-02-12 04:21
No, the 5329 would not be needed if the beneficiaries took the RMD in the same year because no penalty was incurred. However, it would be helpful to attach an explanatory statement to the final return that the RMD was taken by beneficiaries (show name and SSN) for the year of death. This should eliminate an inquiry up front rather than waiting a couple years to see if there will be one, and then dealing with the response.
Permalink Submitted by Al Fry on Wed, 2008-02-13 01:15
Alan can’t they go ahead and take the owner’s year of death RMD from the IRA, then establish the inherited IRAs?
Permalink Submitted by Alan Spross on Wed, 2008-02-13 04:07
Al,
Yes, the order does not matter.
The math is a little easier if they split the accounts first, unless each takes an identical RMD or other distribution on the same day sometime before the split occurs. That’s because the earnings must be allocated correctly at the time the separate accounts are created.
They also should be aware that any disclaimer possibility is shot down for any beneficiary that takes out anything more than the full RMD, and the first distribution is deemed allocated to the RMD.