RMD

Submitted by Clarence Boje on Sun, 2016-08-07 16:52

Husband dies and leaves TIRA’s and converted RIRA’s,all older than 5 year to wife.Wife claims IRA’s as her own. Wife dies 3 years later and all yearly RMD’s have been received and has her own original TIRA’s and her own original converted RIRA’S some of which are less than 5 years old. She has listed her 4 children as 25% beneficiaries.. How do the 4 children figure their RMD’s and are there any other pitfalls they should be aware of. THANKS.



Submitted by Alan - IRA critic on Mon, 2016-08-08 00:26

  • When a surviving spouse inherits a Roth IRA, they are treated as if they owned the IRA from the date their spouse established it. Since husband had held the Roths for 5 years, and surviving spouse is treated as if she also owned those Roths for 5 years. All of her Roth IRAs are considered to have been held 5 years, because all of them are considered established when the first one (husband’s) was established. She then dies and children inherit already qualified Roth IRA accounts. When they establish inherited Roth IRAs by the deadline, each of them can use their own life expectancies for their beneficiary RMDs, and all RMDs will be tax free. They do not need an 8606 to report these RMDs, and the distributions are shown only on line 15a of Form 1040.
  • The inherited TIRAs are less complex, although if there is any basis inherited, each beneficiary gets their share of basis. RMD divisors will be the same as for the inherited Roth IRAs. The RMDs for the TIRA and Roths cannot be aggregated and the appropriate RMD must be taken from each.

Submitted by Clarence Boje on Mon, 2016-08-08 23:56

The 4 children are 50, 55, 57, and 60. Can you explain exactly what each of the 4 children must take out during the first 2 years  for a traditional and a roth IRA ? Thanks!

Submitted by Clarence Boje on Tue, 2016-08-09 00:00

The 4 children ar 50, 53.57 and 60. Can you explain what each child must take out during the first 2 years ifrom both the Traditional and the Roth IDA.s

Submitted by Alan - IRA critic on Tue, 2016-08-09 01:01

  • First, the childrent should submit a death certificate and other papers required by the IRA custodian to establish separate inherited IRA accounts for each. This needs to be done no later than 12/31 of the year following the year of death. This allows each child to use their own life expectancy for RMDs as indicated below. If this deadline is missed, then all the chlldren will have to use the RMD divisor of the oldest beneficiary.
  • The balance of each inherited IRA as of 12/31 of the year the wife passed is multiplied by 25% to produce the amount of each beneficiary’s inherited share. For the year following the year of death, each beneficiary checks Table I in Pub 590B under their age at the end of that year and the divisor shown is divided into the 25% share as of the prior 12/31. The year following the first beneficiary RMD year, the divisor used for the prior year RMD is reduced by 1.0, therefore there is no need to go back to the table again. If any child wants to take out more than the RMD, that is OK but for the inherited TIRA all amounts distributed will be taxable.
  • Note that the beneficiaries need to check the prior tax records for each parent to see if there was any basis inherited in the TIRA due to non deductible contributions. If so, a pro rated portion of each TIRA RMD will be non taxable as calculated on a Form 8606 filed by each beneficiary. Often this gets overlooked and can be an added tax hassle, but it does save tax dollars if there is inherited basis. The inherited Roth is totally qualified and tax free if Dad first contributed to a Roth prior to 2012, which is likely to be the case however this should be verified.
  • If you want to provide the year of mother’s death I will assume that the ages you posted are attained in the following year and will post the initial RMD divisor for each.

Submitted by Clarence Boje on Tue, 2016-08-09 09:24

Dad never contributed to Roth IRA’s but started conversions in the year 2000 until 2007. Mother never contributed to Roth IRA’s but started conversions in 2000 until 2014. She died in 2015

Submitted by Alan - IRA critic on Tue, 2016-08-09 19:24

Since mother died in 2015, then the first year for beneficiary RMDs for the children is 2016. These RMDs must be distributed by year end 2016.  Am assuming the ages for the children you stated are correct as of 12/31/2016. 60 year old divisor 25.2, 57 is 27.9, 55 is 29.6, and 50 is 34.2. For 2017 all these divisors will be 1.0 less, 2.0 less for 2018 etc. This also assumes that they have established separate inherited TIRA and inherited Roth IRA accounts for each of them no later than 12/31/2016. The divisors are the same for the inherited TIRAs and the inherited Roth IRAs.

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