Inherited IRA RMD question
Scenario:
Father owns IRA and is over 70.5.
Father died in 2010 and 4 children are the designated beneficiaries.
Custodian split account into 4 bene IRAs but never took father’s RMD for 2010 before splitting.
4 children agree to each withdraw 1/4 of father’s RMD for 2010. 3 of the 4 do it, and now one is refusing (he is getting divorced).
What is the liability for the portion of the RMD not taken on the other 3 siblings? Will they share in the 50% penalty on the portion not taken? Or is the one sibling who refused responsible?
They will then continue to take RMDs on their life expectancies to stretch in future years of course, but the question is on this year. Should they just take out the extra among the 3 of them, or is that unnecessary?
Thanks!
Dave
Permalink Submitted by Alan Spross on Mon, 2010-12-27 22:30
FIrst of all, to determine whether father had a 2010 requirement, his death is measured by his required beginning date which is 4/1 of the year following the year he reaches 70.5. If he has not reached the required beginning date when he passed, there is no RMD for 2010.
But will assume here that he passed on or after the RBD and therefore a 2010 RMD applies. I am not aware of a specific IRS Reg that answers your question, but the scenario here presents a reason for the beneficiaries to require that the 2010 RMD is distributed prior to establishing separate accounts (in this case 25% to each one). The 3 siblings that took their share of the RMD in good faith may be able to avoid the penalty and additional RMD distribution, but no way to know for sure. Therefore, one unpopular solution might be for the 3 of them to split the remaining 1/4 share and take a supplemental RMD amount, ie 1/3 more than what they previously distributed to eliminate the shortfall altogether.
Usually, you might expect that at least one of the four wanted to distribute more than the RMD amount and any excess over the individual share would cover for the others, but when none of them wants to take more than their share of the actual RMD requirement and then one reneges, there is a potential problem created that the IRS might not inquire about for a couple years. There is no set date where they could feel home free on this matter.
Another related question is what happens if the father had not only not taken out the 2010 RMD, but had perhaps never taken his RMDs. No way to know for sure if the IRS would look to the beneficiaries for all the back RMDs or would only require them to take out the 2010 amount. All the Regs talk about here is the 2010 amount.
Another question in this case is if the divorcee’s share of the inherited IRA is immune from the divorce settlement even though it is not marital property. States vary in their recent court cases over an inherited IRA’s degree of exclusion from the bankruptcy estate, and this could also apply to creditors who are not bankrupt. If the divorcee’s share is not protected in a marital settlement, then they may as well cooperate and take their share of the 2010 RMD.
What the IRS really wants here is for the 4 of them to work this out, and perhaps that is why we do not have detailed regs on this issue.
Permalink Submitted by Bruce Steiner on Tue, 2010-12-28 03:28
In most states, gifts and inheritances are not subject to equitable distribution upon divorce. However, in about 1/4 of the states, gifts and inheritances are subject to equitable distribution upon divorce.
How does it matter whether the child takes a required distribution? Wouldn’t the inherited IRA either be subject to equitable distribution or not be subject to equitable distribution depending upon whether inheritances are subject to equitable distribution in the child’s home state?