Can IRA donations satisfy RMD in the year after death?
An 86 year-old owns 2 TIRA’s when he dies. The prior Dec. 31 IRA values and the beneficiaries are: TIRA #1 = 750K with 3 sons (in their 50’s) as equal beneficiaries; TIRA #2 = 250K with 4 university beneficiaries who will receive 100K (his alma mater), 50K, 50K and 50K. To simplify matters, please assume there’s no growth, loss or income that could alter the IRA balances (though of course distributions would decrease these balances) and that my use of the term “the year-after-death” means “the year after the year of death of the original IRA owner.”
In his year of death, the IRA owner does not take any distribution but I believe his RMD (1,000K/14.1 = 70,922) would be satisfied by the post-death distribution that year of 100K to his alma mater so his son beneficiaries would not have to take a distribution in that year. Let us assume the distributions of the IRA #2’s remaining 150k to the other 3 universities take place early in the year-after-death and that later that year (but before December) his 3 son beneficiaries inherit their shares of IRA #1.
Q.: Since the sons never own IRA #2, am I correct that the 150K distribution to the 3 schools in the year-after-death has no bearing on the sons’ RMD’s ?
Permalink Submitted by Alan Spross on Fri, 2011-05-06 22:49
Yes, you are correct. The sons must still take their own RMD for the year after death. This is best done by creating separate accounts prior to year end of that year such that each son can take their own RMD based on their individual life expectancies. They would each apply their divisor to their share of the prior year end balance, which would be 250k each. The 150k taken by the schools cannot be used to reduce the son’s RMDs as you correctly expected.
Still, the example is illustrative that the year of death RMD can be taken from any of the decedent’s IRAs, in this case the IRA inherited by the universities. The IRS effectively loses the taxable income on this particular IRA not only for years following the death, but also for the year of death simply because the decedent did not take the year of death RMD and the school did. This also worked for the benefit of the sons because they did not have to take a taxable RMD for the year of death since the school covered the entire RMD. The sons therefore received their share without any reduction for the year of death RMD.
Putting it another way, there is no requirement that the year of death RMD must be taxable merely because it would have been taxable had the decedent withdrawn it prior to death. This is true even though the amount of the RMD is based on the decedent’s life expectancy and aggregated IRA balance.
Permalink Submitted by fairira on Sat, 2011-05-07 00:10
Many thanks once again, Alan. How fortunate we all are to be able to consult you.