RMD Beneficiary IRA
One of my clients died earlier this year before taking her RMD.
The assets are about to be split and transferred 1/3 each to the Beneficiary IRA’s for her three children.
My custodian said that no trades and no distributions can be made from Mom’s IRA, and that the children have to cover Mom’s RMD for this year.
Does the RMD have to be split 1/3 each, or if one withdraws more than enough to cover the RMD would this suffice?
Appreciate your input on this.
Jan Sleeter
Permalink Submitted by Alan Spross on Fri, 2011-10-14 20:15
The custodian has no authority to deny distributions to any beneficiary, but they are apparently trying to simplify the accounting for each 1/3 share. Mom’s RMD must indeed be taken, but is not delinquent until 12/31/2011.
The client’s 2011 RMD can be satisfied by any beneficiary, so the one that needs the money can satisfy the RMD in total, and the other two can stretch out their shares longer as a result.
To process this, the custodian could create the separate accounts and partition 1/3 to each of the two inherited IRAs for those that will not be taking the RMD. On the same day the custodian could distribute the RMD to the one willing to take it, and then transfer what is left to an inherited IRA for that beneficiary.
If the custodian would rather create the 3 inherited IRAs first and do the transfers, that would also be fine and the beneficiary taking the RMD could then take the full RMD out. One method might work better with the custodian’s account platform than another. Of course, whoever takes the RMD will be taxed on it in the year distributed and will receive a 1099R.
Permalink Submitted by Clyde Wolf on Fri, 2011-10-14 20:51
[quote]Of course, whoever takes the RMD will be taxed on it in the year distributed and will receive a 1099R.[/quote]
And that one will still need to take an RMD next year and each successive year,
but most likely on a smaller year end balance as compared to the other 2 beneficiaries.
Permalink Submitted by Alan Spross on Fri, 2011-10-14 21:01
This is also the time where it should be determined if there is an inherited basis in the TIRA that would be split in pro rated shares between the beneficiaries. Each beneficiary would have to file an 8606 with their first RMD or other distribution, and the after tax portion would be tax free.
Checking the last couple tax returns of the decedent taking RMDs would reveal any 8606 and amount of basis remaining for the decedent. This is the easiest way to determine if there was any basis passed to the beneficiaries. If there is reason to believe that the decedent had basis they were overlooking, that would require a more extensive review of older returns and records, amending recent decedent returns etc. This would all turn into a real project, not worth it unless the amount of potential basis warranted the extra work.