RMD for a Non-spouse Inherited IRA
I’ve searched many of the posts, but have yet to see one that fits our particular situation. So here goes.
My wife’s mother, Mrs. B, passed away in late December 2010, at the age of 66, naming my wife, Mrs. M, the beneficiary of a death benefit of $5000 (see description here – https://kyret.ky.gov/index.php/retirees/5000_death_benefit) from a defined benefit pension plan. The pension plan advised Mrs. M ,she could take the death benefit ($5,000) as a lump sum or roll it over into a Inherited IRA. Mrs. M elected to roll it over into an inherited IRA, to defer the taxes on the death benefit. The paper work took until March 2011 to complete the creation of the Inherited IRA and the transfer of the funds which was done via a trustee to trustee transfer (i.e. Mrs. M never took possession of the $5,000).
My questions are this:
We are assuming Mrs. M needs to take an RMD for 2011, since 2011 is in the year following the death of her mother, Mrs. B. Is that correct or is the first RMD not required till 2012 since possession of the death benefit ($5,000) did not pass till 2011?
Second, the current trustee says they cannot figure the RMD because there was no balance in the account as of 12/31/2010. Assuming an RMD is required for 2011, I’m assuming we should use the death benefit amount of $5,000 as the balance as of 12/31/2010. If Mrs. M is 50 as of 12/31/2011 with a remaining life expectancy of 34.2 years and her mother Mrs. B was 66 at the time of her passing. I come up with an RMD of $146 for 2011. Is this correct?
Thanks for your help!
Permalink Submitted by Alan Spross on Fri, 2011-11-18 19:08
Yes, you are correct including the RMD calculation for 2011, although she can choose the 5 year rule if she wants. The plan did not withhold the 2011 RMD because your wife has a choice between the 5 year rule and life expectancy distributions since the plan (distribution) transfer was made before the end of 2011. If she wants to take life expectancy RMDs, she must distribute what would have been the plan RMD before 12/31/2011. In other words, she would use a 12/31/2010 balance of 5,000 and the age she will attain in 2011. Following is a copy of Q&A 19 of IRS Notice 2007-7 dealing with the IRA RMD.
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Q-19. After a direct rollover by a nonspouse designated beneficiary, how is the
required minimum distribution determined with respect to the IRA to which the rollover
contribution is made?
A-19. Under § 402(c)(11), an IRA established to receive a direct rollover on
behalf of a nonspouse designated beneficiary is treated as an inherited IRA within the
meaning of § 408(d)(3)(C). The required minimum distribution requirements set forth in
§ 401(a)(9)(B) and the regulations thereunder apply to the inherited IRA. The rules for
determining the required minimum distributions under the plan with respect to the
nonspouse beneficiary also apply under the IRA. Thus, if the employee dies before his
or her required beginning date and the 5-year rule in § 401(a)(9)(B)(ii) applied to the
nonspouse designated beneficiary under the plan making the direct rollover, the 5-year
rule applies for purposes of determining required minimum distributions under the IRA.
If the life expectancy rule applied to the nonspouse designated beneficiary under the
plan, the required minimum distribution under the IRA must be determined using the
same applicable distribution period as would have been used under the plan if the direct
rollover had not occurred. Similarly, if the employee dies on or after his or her required
beginning date, the required minimum distribution under the IRA for any year after the
year of death must be determined using the same applicable distribution period as
would have been used under the plan if the direct rollover had not occurred.
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