Inherited IRA RMD when decedent’s distribution amount is unclear
I’m curious if anyone has any thoughts on this situation.
My client has inherited an IRA from his father who died in 2013 after his RBD. Prior to his death, he filed a letter with the custodian of the IRA indicating that he would satisfy his RMD attributable to this account from other IRA accounts of his.
My client is not a designated beneficiary on all of the IRA’s. The account in question has been split and his share is currently titled as an Inherited IRA.
There are a number of issues at play to muddy the waters here including a holographic will that is being settled in court as to its validity.
The Question right now is should my client take an RMD equivalent to what his father should have taken in 2013 or not? Based on the correspondence the bank has, the father at least intended to take his RMD from other sources. We do not know whether this was actually done prior to his death or not. Because of the issue in court, the presumed executor of the will has been non-responsive to requests from my client to provde evidence of whether the RMD was satisfied during lifetime or not.
So, here are the options as I see them:
1. Do not take the RMD. If IRS ever comes knocking, you present the letter filed with the bank and copies of the correspondence sent to the Estate requesting the information as reasonable justification for abatement of the 50% penalty. He would likely have to take the “make-up” distribution at that time.
2. Take the RMD. This prevents any potential for dealing with penalties in the future but also may be unnecessary and shift income in to this year that he does not want. That is also not to mention the continued tax-deferral on a larger balance if he does not need to take this money out this year.
I appreciate any thoughts on this.
Best,
Dan
Permalink Submitted by Alan - IRA critic on Mon, 2013-12-23 18:42
If there is an RMD shortfall, client also has the challenge of cooperation from the other beneficiaries as to who would take it. Normally, any beneficiary can take it if beneficiaries on all accounts are identical, but in this case where they differ, it is problematic for each IRA account not to make up it’s own shortfall. I would go with a modified Option 1, ie wait on the RMD until the executor or beneficiaries of other IRA accounts provide clarity on the RMD status. Client should notify them of the need for this information. The 1099R forms should be issued by the end of January, so that will indicate the amount taken, but further research will be needed to determine what the total RMD was. Due to the reason for the delay, the IRS will almost certainly waive the penalty with a proper Form 5329 request for waiver.