RMD year of death

Submitted by chris shamel on Tue, 2015-11-24 18:30

Husband (age 90) dies in 2015 prior to taking his RMD for 2015 (which had begun long ago). Wife is beneficiary of husband’s IRA. Husband’s IRA will be directly transferred to wife’s existing IRA and then AFTER transfer to wife’s existing IRA, the husband’s RMD for 2015 will be distributed to wife. Wife will also take her 2015 RMD from her (now combined) IRA. This is pursuant to instructions from national brokerage company.

I suggest that husband’s RMD should be distributed to wife PRIOR to rollover to her IRA. My concern is IRS might argue that the distribution did not come from husband’s IRA and attempt to assess 50% penalty for failure to take RMD from the husband’s IRA. If distribution is from husband’s IRA, reporting on 2015 Form 1099-R should reflect this. Am I making too big of a deal out of this?

I am also concerned that the husband’s IRA should be transferred to a NEW IRA in the wife’s name and not combined with her existing IRA. On her death, doesn’t her existing IRA have to be distributed as before her death whereas the husband’s separate IRA in her name might be spread over a longer period of time by naming new beneficiaries and utilizing their life expectancies?

Thanks for your comments.



Submitted by Alan - IRA critic on Tue, 2015-11-24 20:38

  • There are two ways to process a “spousal rollover”. One is taking a distribution and rolling it over to the surviving spouse’s existing or new IRA account. This is a reportable distribution on a 1099R and therefore such a distribution results in the incomplete year of death RMD being included in the distribution and to the extent of that RMD, the distribution is not eligible for rollover. If the RMD was rolled over, it becomes an excess contribution to the surviving spouse’s IRA and must be withdrawn as a corrective distribution.
  • The other way is to do a direct trustee transfer in the same manner as would be done for a non spouse beneficiary, except that in this case the balance is transferred to the surviving spouse’s OWN IRA. Since this is done by direct transfer it is non reportable on a 1099R as a distribution and the RMD was therefore not included. It must still be satisfied via a distribution from the surviving spouse’s IRA.
  • The problem is that it may not be clear whether the custodian will report the movement of funds as a distribution or not. Because of this uncertainty, as you suggest it is safer to take out the year of death RMD before moving the funds over. Then it will not matter whether the custodian issues a 1099R or not. While it is unlikely that the IRS will question the account from which the year of death RMD comes from, and will certainly waive the penalty regardless of which account distributes this RMD upon filing a 5329, as you suggest it may be best to avoid potential complications in the first place.
  • With respect to your last question, the beneficiaries of the surviving spouse are considered as “designated beneficiaries” upon her death and can take their own life expectancy RMDs in the same manner whether the IRA accounts were combined or an additional account was added to hold the funds from the deceased spouse’s IRA. The surviving spouse owns them both so there is no difference. So this is not a concern as long as the surviving spouse does own them and does not continue as a beneficiary on one of them. Accordingly, at the ages of this couple, the surviving spouse should get the inherited IRA rolled over (or transferred) ASAP and update her beneficiary if necessary.

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