RMD of Decedent
My mother passed away recently and my sister and I are the beneficiaites of her IRA on an equal basis. I am 61 and my sister is 66. My mother did not take her RMD for 2011. I know my sister and I will have to take the RMD and pay taxes on it. Do we take the RMD on an equal basis? Also, does the RMD come out of my mother’s IRA account and get paid to my sister and me before the rollover distribution to the Beneficiary IRAs, or do we take it our of our IRA Beneficiary accounts after we have received the rollover? Thanks.
Permalink Submitted by Alan Spross on Fri, 2011-07-15 17:57
Sorry to hear of your loss.
If you each plan to take 50% of the remainder of your mother’s 2011 RMD, it is probably easier to take those distributions out before establishing your separate beneficiary accounts. However, if for example your sister wants or needs to take out more than her 50% share, it eliminates accounting problems for the IRA custodian to set up the separate accounts first and then she could take out the extra amount and tell you how much if left for you to take out, perhaps -0-. The IRS only requires the RMD to be completed in total, not proportionately for each beneficiary although there is less chance of mistakes if each takes out their exact share.
It will also help the IRS to know that the RMD was completed if an explanatory statement was added to your mother’s final return showing the name and SSN for her beneficiaries that took out the rest of her RMD for 2011.
Both of you will not have to take another RMD until the end of 2012.
CRITICAL: the creation of separate accounts must be done by direct transfer. You cannot get checks made out to you and roll them over like you might on your own IRA. Any payment to either of you is fully taxable and not eligible for rollover. This is a common and costly error.
Also, check to see if your mother has any basis in her IRA from non deductible contributions (look for Form 8606). If so, you each inherit half of what is left and your distributions will be partly tax free.
Permalink Submitted by Joan Feinstein on Fri, 2011-07-15 18:11
Thanks for the quick response and the helpful tips. I gather from your response that the key is letting the IRS know who is paying taxes on the RMD and not the payment procedure (from decedent’s account vs. Beneficiary account).
Permalink Submitted by Alan Spross on Fri, 2011-07-15 20:10
I don’t know that the IRS has recommended a communication procedure when beneficiaries complete a decedent’s RMD. They only state that it is the beneficiary responsibility, not the decedent’s and therefore if there were to be any penalty for failure to complete the RMD, it is the beneficiary who would have to pay it and/or request the penalty be waived.
So how would the IRS be able to link the responsible beneficiary with the decedent’s final return reporting distributions less than the total RMD?
1) 1099R instuctions require the IRA custodian to issue a Form 5498 for BOTH the decedent and the beneficiary. The beneficiary 5498 must include the name of the decedent (but not the decedent SSN). Since deaths are often reported months if not years after the owner’s death, it appears some time would pass before the IRS could locate and match up both parties returns.
2) An explanatory statement with either the decedent’s return OR on the beneficiary return would assist in having the IRS tie up loose ends and prevent inquiries from being issued in the future. While one such statement should suffice, it certainly would not hurt to attach them to both decedent final return and the beneficiary returns for that year (or for later year if beneficiary does not get the RMD completed until the following calendar year).