Remaining RMD for 2013 for deceased IRA holder
This is the situation, John Doe, age 76, passed away this past June. He has 2 IRA’s at two different institutions. IRA #1, calculated RMD for 2013 is $28k and he took out only $25k before he passed. The custodian allowed the two daughters (50% each) to take the remaining $3k RMD before each transferred to an inherited IRA at new custodians. Now IRA #2 had a calculated RMD of $2k at different custodian and no monies were taken out before father’s death. That being said, there is an outstanding RMD of $2k that must be satisfied by 12/31. IRA #2 custodian would not allow the RMD to be taken out, before the daughters transferred to the inherited IRA (combined with IRA #1). They were only allowed to take a full distribution or full transfer to inherited IRA. So we transferred IRA #2 to the inherited IRA. Can we now have the daughters (50% each) take out the remaining RMD of $2k for 2013 to satisfy their deceased father’s RMD for 2013? Please advise, it would be greatly appreciated! Thank you!
Alek
Permalink Submitted by Alan - IRA critic on Wed, 2013-09-25 20:17
Yes, the beneficiaries can take the remaining RMD of 2k from the inherited IRAs which remains. Note that the year of death RMD does not have to be taken in proportion by the beneficiaries. If one daughter needs the money and the other does not, the year of death RMD can be satisfied by the one that needs the money. I assume that each daughter has their own individual inherited IRA now, so deviating from the 50-50 split will not cause any accounting challenges. Of course, this flexibillity only applies to the year of death RMD. For all years thereafter each daughter must take their own RMD from their inherited IRAs using their own life expectancies.
Permalink Submitted by Aleksandar Krakovic on Thu, 2013-09-26 00:11
Thanks Alan! I do have another question for you. One of the daughters had that IRA #2 monies distributed to her, personally. Then she turned around and deposited into the inherited IRA that she set up. Now I’m not working with that daughter, but am I right that cannot be done? I thought when a non-spouse bene wants to preserve the tax deferral of the deceased IRA, then they would have to do a direct transfer from custodian to custodian? Can you please clarify? Thank you! Alek
Permalink Submitted by Alan - IRA critic on Thu, 2013-09-26 00:38
You are correct, an indirect rollover of a non spouse inherited IRA distribution is not allowed and there is no fix for this error. Assets can only be moved by direct trustee transfer. I suspect that she will report a rollover on line 15 of Form 1040 as she will receive a 1099R. The IRS may or may not determine that the inherited IRA was for a non spouse rather than a surviving spouse. If they catch this, the distribution will be fully taxable and the inherited IRA balance will be treated as an excess contribution. There is no statute of limitations for an excess IRA contribution.