Would Beneficiary use that figure plus the 2015 RMD amount that wound up being deposited back into the IRA?

Submitted by Cheryl Van Beek on Sun, 2016-11-13 18:31

Traditional IRA 2015 RMD check was issued to decedent but decedent passed away before cashing. The Custodian ended up re-depositing it back into her IRA account in June 2016 and reflecting the reversal on a corrected 1099-R for 2015. Her sole Designated Non spouse Beneficiary will be taking that 2015 RMD (albeit late & filing waiver request) as well as her 2016 RMD from this account. What figure will Beneficiary take to base her 2016 RMD on—the Year End Value reflected on the 12/31/2015 statement as you would normally do? Or, would Beneficiary use that figure plus the 2015 RMD amount that wound up being deposited back into the IRA? I would think Beneficiary could still use the original Year End Value on the 12/31/2015 statement since she will also be taking the 2015 RMD that had not been taken previously but am not sure. How must this be done exactly? Both RMDs should be done very shortly—as soon as amounts are figured and forms processed. Thanks.



Submitted by Alan - IRA critic on Sun, 2016-11-13 19:45

Decedent’s executor should have deposited the check into the estate bank account, it should not have been re issued and most custodians would not accept a returned check. However, now that this is done it appears to fall under the “outstanding rollover or recharacterizations” guidelines which address amounts that originated in an IRA, were distributed from the IRA and then returned to an IRA after the year end. Under those rules, the amount returned must be added to the year end balance, which would of course increase the RMD in the following year. To my knowledge there is no specific guidance on this unanticipated fact pattern, but using the outstanding rollover rule would provide a consistent result with what would have occurred had the uncashed check never been issued as reflected on the corrected 1099R.

Submitted by Cheryl Van Beek on Sun, 2016-11-13 20:43

In the case of a Traditional IRA 2015 RMD check that was issued to decedent but decedent passed away before cashing, the check wasn’t returned to the Custodian. The Custodian put a stop on it because it was never cashed because the Beneficiary had not yet been named as Personal Rep and couldn’t do anything with the check. The Beneficiary of the IRA is also sole Beneficiary of the decedent’s entire estate and soon to be Personal Rep. After re-depositing/crediting back the amount, the Custodian told the Beneficiary they would absolutely not reissue the amount to the estate but that the Beneficiary had to take it. In this case, the Beneficiary  should still base her RMD for 2016 on the larger amount–the Dec.31 year end value reflected on the year end statement plus the amount of the 2015 RMD that was issued to decedent but never cashed and was credited back to the account, rather than the actual lower amount on the Dec.31. 2015 year end statement (but which of course was reflecting the amount after the 2015 RMD was issued because the 2015 RMD had not yet been credited back) —even though the Beneficiary will be taking both RMDs that (2015) and her 2016? Also, does this still fall under the “outstanding rollover or recharacterizations” guidelines? If so does anything else need to be done? 

Submitted by Alan - IRA critic on Sun, 2016-11-13 22:08

Very strange position by the custodian, setting up this highly unusual situation for which there is no direct guidance. In principle, I will stick with my prior position regarding the RMD calculation, but the 5498 showing the account balance may not have been changed to reflect the later re issue of the check. In that case, the IRS is not likely to question the 2016 RMD amount if it is based on the 5498 statement of the account value as of 12/31/2015 even if that value reported the lower value reflecting the outstanding check.

Submitted by David Mertz on Mon, 2016-11-14 00:04

  • It seems to me that if the custodian issued a corrected 2015 Form 1099-R to indicate that no distribution took place, the custodian should also have issued a corrected 2015 Form 5498 with a year-end value that reflects that this money was effectively in the account at year end.
  • Basing the 2016 RMD on the higher 2015 year-end balance that includes the amount treated as not distributed in 2015 will certainly result in a sufficient distribution to satisfy whichever value the IRS considers to be the appropriate year-end value to use.

Submitted by Cheryl Van Beek on Mon, 2016-11-14 01:13

Thank you very much!

Submitted by Cheryl Van Beek on Mon, 2016-11-14 00:05

In case it makes a difference, the statement showing the year end value as of Dec. 31 2015 isn’t a 5498. It’s just a regular monthly account statement that specifies the Year End Fair Market value and refers to it as the RMD Basis for 2016. I don’t think they send a 5498. Does that change anything?   I guess if I;m unsure, I  could always add the amount that was credited back to the 2015 year end value, back in and take the higher distribution to avoid an IRS error? But that wouldn’t be as beneficial financially. As a Non spouse Beneficiary (any age adult) of an inherited traditional IRA where the decedent owner had already been taking distributions,  you can always take more than the minimum RMD without any tax penalties right– it’s just not as advantageous right? Thanks again.

Submitted by David Mertz on Mon, 2016-11-14 00:07

The custodian does send a Form 5498 to the IRS even if they provide the equivalent information to you only with an account statement.  It might be worth obtaining a Wage and Income transcript for 2015 to see if a corrected Form 5498 was filed:  https://www.irs.gov/individuals/get-transcript

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