Taking remainder of RMD amount after death of owner

Submitted by Glenna Rogers on Mon, 2016-11-14 16:46

An IRA owner takes his yearly RMD split into 4 equal distributions in March, June, September, and December. He has taken the first three distributions, but has passed away prior to taking the final 1/4 of the RMD in December 2016. His Estate is the beneficiary of his IRA. I believe there are only two choices for the Executor of the Estate, but the choice would not need to be made until 2017: 1. Make a full distribution of the IRA to the Estate OR 2. Open an Inherited IRA for the Estate and make distributions to the Estate based on the deceased owner’s life expectancy. But what about that remaining 1/4 of the 2016 RMD? Can I just pay it to the Estate in December 2016?

Thank you very much.



Submitted by Alan - IRA critic on Mon, 2016-11-14 17:34

This IRA can still be stretched over the remaining life expectancy of the deceased owner. Since the executor will likely want to terminate the estate well before then, the executor can assign the IRA out of the estate to the beneficiaries of the estate. As for completing the year of death RMD, when the owner passes late in the year the IRS will always grant the penalty waiver if a 5329 is filed by the estate. That RMD can be distributed to the estate OR if the IRA is assigned to the estate beneficiaries, by those beneficiaries from their inherited IRA accounts. The 5329 for 2016 should be filed by the estate to request the waiver since the IRA will still be in the estate as of 12/31/2016, so technically the estate was responsible for completing it. If you are the custodian, you do not need distribute the rest of the RMD to the estate this year unless the executor wants it. Note that due to the RMD aggregation rules, the owner could have taken a distribution from another IRA which you are not even aware of and that would be credited against his total RMD. One reason the estate might not want the income is that it would require a 1041 and the estate might not have any other income and the executor may prefer that the rest of the 2016 RMD be paid to the beneficiaries after the IRA is assigned to them.

Submitted by Glenna Rogers on Mon, 2016-11-14 18:43

Thank you very much for your help.

Submitted by Barry Callaghan on Tue, 2016-11-15 01:34

My sister and I lost our dad earlier this year and we were told by the firm where the IRA is held that his MRD had to be taken out this year. We asked if the payment could be (1) deposited into my dads trust account (registered in his SS# at the same firm) or (2) paid to one of the two beneficiaries with a written letter that the second beneficiary is in agreement.We were told that the RMD could not be deposited in my dads trust account and that it had to be distributed to the beneficiaries in the percentages outlined in the account documents.. Can you confirm if this is corrrect. Ideally we would have the MRD deposited into his trust and distribute the assets at a later point – some time in 2017.Thanks in advance for your help!!! 

Submitted by Alan - IRA critic on Tue, 2016-11-15 03:36

  • Partially correct. Any distribution must be made to the beneficiaries designated on the IRA agreement. It cannot be directed anywhere else. However, those beneficiaries are free to demand that NO distribution be done this year if they wish. The fact is that the IRS routinely waives the penalty if the decedent’s RMD is not distributed by the end of the death year as long as the beneficiaries take it out shortly thereafter and file a 5329 requesting a penalty waiver for the year of death. Again, any distribution that is done must be made to the beneficiary listed on the agreement, but the IRA custodian should not be forcing the distribution if the beneficiaries do not want it distributed this year.
  • You can also request that inherited IRAs be established for each of you, and after that is done you can individually request the year of death RMD be completed in ANY COMBINATION you wish. For example, if one of you needs the money and the other does not, the entire year of death RMD shortfall can be distributed to the one that needs or wants the distribution. This is true only for the year of death RMD, not for any beneficiary RMDs for 2017 or beyond. Distributions made will be reported to the respective beneficiary on a 1099R for the year of distribution and will be taxable to that beneficiary even though it was your dad’s RMD.
  • Note that if your Dad had any other IRA accounts, he might have taken distributions from the other account that would have completed his RMD. This is referred to as the RMD aggregation rules.The current custodian has no idea whether this occurred or not. It is one of the reasons that the current custodian should not be pushing out the RMD this year assuming this was the only IRA he owned, even if that is true.
  • So you can take the RMDs in 2017 in any combination you wish, but they must be paid to you, not to the trust because the trust was not named as beneficiary. And you must file a 5329 requesting the penalty waiver if the RMD is not completed by 12/31.

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