Inherited IRA Withdrawal
A client of ours is 1 of 3 beneficiaries of her mother’s IRA. The mother passed away in January of 2011 and prior to taking the mother’s RMD for 2011 ($8602), the IRA was split three ways and neither beneficiary has withdrawn the RMD to date. If our client withdraws her 1/3 of the RMD ($2867.34), but the other 2 beneficiaries fail to withdraw before 12/31/11, will all 3 beneficiaries be penalized or would our client escape the penalty since she took 1/3 of the RMD?
Thank you.
Permalink Submitted by Alan Spross on Mon, 2011-11-28 22:45
From the copy of the IRS Reg 1.401(a)(9)-8 below, it appears that the IRS would consider the beneficiary that takes their 1/3 of the RMD to have satisfied their requirement. The penalty and/or filing a 5329 to request a penalty waiver would only be a requirement of the other 2. The final sentence is the key.
What makes this somewhat confusing is that the RMD for the year of death can be satisfied by any beneficiary, ie. aggregated among all beneficiaries. This means that if one beneficiary needed the money and wanted to satisfy the RMD alone, the year of death RMD would be satisfied. But when the RMD is NOT satisfied, the following Reg appears to limit the liability for that to the separate account owners who failed to take their share when the total RMD falls short:
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1.401(a)(9)-8:
Q–3. What are separate accounts for purposes of section 401(a)(9)?
A–3. For purposes of section 401(a)(9), separate accounts in an employee’s account are separate portions of an employee’s benefit reflecting the separate interests of the employee’s beneficiaries under the plan as of the date of the employee’s death for which separate accounting is maintained. The separate accounting must allocate all post-death investment gains and losses, contributions, and forfeitures, for the period prior to the establishment of the separate accounts on a pro rata basis in a reasonable and consistent manner among the separate accounts. However, once the separate accounts are actually established, the separate accounting can provide for separate investments for each separate account under which gains and losses from the investment of the account are only allocated to that account, or investment gain or losses can continue to be allocated among the separate accounts on a pro rata basis. A separate accounting must allocate any post-death distribution to the separate account of the beneficiary receiving that distribution.
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Note: The above Reg applies to IRAs as well a qualified plans, as the IRA Regs refer back to the 401(a)9 Regs.
Note 2: Typical example of how siblings differ in following rules.