RMD from inherited IRA
IRA owner, age 83, passed away in 2011 before receiving his RMD.
2011 RMD was distributed to beneficiaries in 2012, after which the account was split into separate beneficiary IRAs.
To compute the beneficiaries’ 2012 RMDs, what is the correct account balance to use?
12/31/2011 FMV?
12/31/2011 FMV reduced by 2011 RMD?
FMV of beneficiary’s account at inception?
Permalink Submitted by Alan Spross on Mon, 2012-01-30 21:24
12/31/2011 FMV multiplied by each beneficiary’s share of that account value. No adjustment is made for the decedent’s 2011 RMD.
Permalink Submitted by Joseph Wild on Mon, 2012-01-30 21:46
Thanks for the quick reply. Just wondering what, if any, is the rationale; it seems the beneficiaries are being penalized just because the owner passed away late in the year, even though it’s only an issue for one year.
Permalink Submitted by Alan Spross on Mon, 2012-01-30 22:26
Having to complete the owner’s RMD is not too bad when you consider that the IRS Regs say nothing about RMD deficiencies for earlier years. Many decedents may well have not taken out their RMDs for years in addition to the year of death, but apparently the IRS will allow the prior years RMD failures to skate through, as the Regs only make the beneficairies responsible for the year of death RMD. The IRS is also generally willing to waive the penalty if the beneficiaries do not take the RMD for the year of death before the end of that year, since the IRS routinely waives the penalty if a 5329 is filed requesting same for reasonable cause. In your stated situation, the beneficiaries that took out the RMDs should file that 5329 on their own 2011 returns to request the waiver, it does not go on the owner’s return because the owner was not responsible for taking out the RMD until year end and did not survive until then. It is also of interest to note that the 2011 owners RMD must go to the beneficiaries, but not in proportion to each’s share. While it is easier for each to take their share of the year of death RMD, if one beneficiary needed the money, that beneficiary could satisfy the decedent’s RMD himself and the other need not take anything. In years thereafter however, each must take their own share since the RMD is no longer the decedent’s RMD.
As for the non adjustment in the year end balance for the decedent’s RMD, this is consistent with the simplification made for owner’s RMDs in the 2002 RMD Regs, ie if the owner does not take the first RMD in the first year and defers it to the next 4/1 RBD, there is no longer an adjustment made to the 12/31 balance. In other words, all 12/31 balances apply to later years as they actually were, without adjustments.
If the owner is in a higher tax bracket than the beneficiaries, it works out better to delay the RMD until year end and therefore if the owner does not survive the year the beneficiaries lose less of the RMD in taxes, and the reverse is also true if the owner is in a lower bracket. For the very old, those RMD %s can be quite large.