RMD Taxation
We received a call from a client whose mother passed away at the age of 72. Her IRA on December 31, 2014 was valued at $ 300,000.00. She has been receiving her RMDs. She has two grown daughters.
When her daughters called Fidelity, they were told that the beneficiary listed was the “ESTATE”.
I am assuming that, once the proceeds pass through probate, the sisters can continue to receive RMDs based on moms LE.
I am also assuming that taxes due are based on the tax rate of the daughters and not taxed at the estate rate ( over $ 12,300 @ 39.6% ).
Would that be correct? Thanks!!
Permalink Submitted by Alan - IRA critic on Wed, 2015-10-28 20:11
Yes. The executor of the estate can have the IRA assigned to each estate beneficiary. Both will have the same RMD divisor based on what Mom’s age would have been at the end of the year she passed. The Table I divisor will be reduced by 1.0 for each year thereafter so there first RMD divisor will be the table divisor less 1.0. If the IRA is not assigned to the beneficiaries soon enough and the estate has to take the RMD, it can be passed through to the beneficiaries on a K 1 and taxed at their respective marginal rates.
Permalink Submitted by Richard Ernst on Wed, 2015-10-28 20:54
Thank you Alan
Permalink Submitted by Richard Ernst on Wed, 2015-10-28 21:15
One last note. The bank, holding the IRA has said that they are not dividing the IRA in two. That just one check is being made: Payable to the “Estate of… “. I am missing something. Am I not?
Permalink Submitted by Alan - IRA critic on Wed, 2015-10-28 23:29
Just more bank anti consumer behavior. This article from Natalie Choate should explain the situation. Resist a distribution to the estate which the bank probably intends to be a lump sum distribution which would eliminate the stretch the IRS rules state is available. https://www.ataxplan.com/bulletin-board/notice-to-executors-and-trustees/