Late initial RMD of Spouse inherited IRA

Submitted by Edward Rosenthal on Tue, 2016-09-13 18:12

Deceased under 70 1/2 when she died. Inherited IRA was set up for husband that was twenty years older and over 70 1/2. It was just realized that the date the deceased would have turned 70 1/2 was in 2015. Therefore no distribution was made by December 31, 2015. The understanding is that the 2015 distribution, plus earnings needs to be distributed as soon as possible. Also the 2016 one before the end of this year. A 5329 should be filed now for the previously filed 1040, requesting waiver of the 50% amount. Is the above correct? If so, how is income to be calculated on the late distribution. What if there was a loss in the account from December 31, 2015 until the date distributed? Since distributions in excess of RMD are allowed, would the RMD calculation itself be acceptable?



Submitted by David Mertz on Tue, 2016-09-13 19:58

  • Earnings attributable to the missed RMD are not required to be calculated or distributed.
  • Because an RMD as beneficiary was not distributed by December 31, 2015, the account is deemed to have been elected in 2015 to be treated as an IRA owned by the surviving spouse rather than as an inherited IRA.  This produces the desirable result that RMDs must be calculated using the surviving spouse’s age with the Uniform Lifetime Table (Table III) instead of using the surviving spouse’s age with the Single Life Expectancy Table (Table I).  This is true for all of the RMDs from this account, including the missed 2015 RMD.
  • Yes, you are correct that the 2015 Form 5329 must be filed to request a waiver based on having subsequently made the missed RMD and with reasonable explanation.  The missed 2015 RMD distributed in 2016 will be taxable on the surviving spouse’s 2016 tax return along with the 2016 RMD to be distributed in 2016.
  • The account should now be retitled with the surviving spouse as owner so as to reflect its owned status.

Submitted by Edward Rosenthal on Tue, 2016-09-13 23:25

Thank you, Appreciated. To be clear, you do understand that a properly titled inherited IRA account was set up upon her death, with the husband as the beneficiary but with the first distribution accidently overlooked.  If so, to summarize the action to be taken, the initial distribution for this account is to be distributed ASAP, from that account, based on table III and based on the balance in the account as of January 1, 2015. The account should then be retitled with the surviving spouse as owner.  Future distributions from this account will be based on table III.  His own separate IRA, should stay segregated and he makes RMD’s from that account based on Table I.  The 5329 is filed as mentioned.

Submitted by Alan - IRA critic on Wed, 2016-09-14 00:01

That is correct with respect to the inherited IRA. But if he has an IRA account he has owned all along, his RMDs from that IRA are also calculated using Table III. Since both IRAs are his (more clearly so after the inherited account is retitled) there is no reason that they cannot be combined. It would make RMD calculations starting in 2017 more simple. If to be combined, it is best to use direct trustee transfer rather than rollover to preserve the one rollover per 12 months under the new rollover limits. Note that if there was any basis in the inherited IRA from non deductible contributions, any such basis would now be combined with any basis he may have in his own IRAs. Form 8606 would be used to update the total basis if applicable. Of course, he should check that all his beneficiaries are current and correct.

Submitted by Edward Rosenthal on Fri, 2016-09-16 00:08

Thank you again.  That all seems clear now.

Submitted by Edward Rosenthal on Fri, 2016-09-16 03:05

Sorry for the additonal question.  If the account is then deemed to be elected to be the owned by the surviving husband beneficiary, instead of an inherited IRA, is it still ok to make the first distribution in 2015, instead of the year following the date of death?  She died in 2011.

Submitted by Alan - IRA critic on Fri, 2016-09-16 03:16

Yes, still OK. The IRA remained an inherited IRA until the first beneficiary RMD was missed on 12/31/2015. There were no RMDs required in prior years because the decedent would not yet have reached 70.5. This IRA did not default to ownership until 12/31/2015 and then retroactive to 1/1/2015. The 2015 RMD is calculated using Table III with husband as owner. The 2015 5329 will request a penalty waiver for the missed 2015 RMD.

Submitted by Edward Rosenthal on Fri, 2016-09-16 16:06

I appreciate that clarification.

Submitted by Edward Rosenthal on Sat, 2016-09-17 17:04

meaning, not by April 1, 2016, like a regular initial RMD on an owned IRA.?

Submitted by Alan - IRA critic on Sat, 2016-09-17 17:30

  • Not 4/1 in this case. For owned IRAs 4/1 is only the required beginning date for IRA Owners who reached 70.5 in the prior year. Since husband is much older than that the 4/1 will not apply to him. Further 4/1 never applies to beneficiary RMDs.
  • Therefore, if a surviving spouse over 70.5 becomes the IRA owner by default due to failure to take the full beneficiary RMD, the default occurs on 12/31 because that is the deadline to take the beneficiary RMD. This will make the reduced defaulted ownership RMD for that year late since the year ends on 12/31, and will trigger the need to file a 5329 to request a penalty waiver.
  • Now if the surviving spouse husband was not yet 70.5 then ownership by default would occur prior to the RBD for an owned IRA. For example, in this situation if the husband was younger than the deceased wife and not yet 70.5 and missed a beneficiary RMD, they would become owner by default before owner RMDs were required. In this case, the ownership RMD RBD would be 4/1 of the year following the year husband reaches 70.5 and the beneficiary RMD is erased. No 5329 would be needed..

Submitted by Edward Rosenthal on Sat, 2016-09-17 18:52

Thanks for that confirmation, and the elaboration.  It is actually facinating, and I genuinely appreciate your responses.Ed

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