RMD entered on final tax return?
My father passed away in October of 2016. He held a small IRA but had not taken his RMD for 2016. By the time the Executrix was able to set up the “Small Estate” and get the documentation confirming her appointment in order to access the IRA, it was early 2017. The IRA is finally being distributed to my sisters and I. Is form 5329 filed with my father’s final tax return, or do we as beneficiaries have to file it with our 2017 returns next year? HELP!
Permalink Submitted by Alan - IRA critic on Wed, 2017-03-08 20:45
Sounds like another case of not having designated beneficiaries on the IRA. The year of death RMD will have to be distributed to the estate and the estate will have to file the 5329 requesting the penalty waiver. However, if the estate is able to close fairly soon and is able to assign the IRA to the estate beneficiaries, the year of death RMD can wait until each beneficiary has their own inherited IRA. The year of death RMD can be taken in any combination by the beneficiaries, but there will have to be good communication to get the total RMD distributed. The 5329 should be filed on estate’s return since the estate was the beneficairy on 12/31 and responsible to take the RMD by 12/31. The explanation should indicate the name and SSN as well as the amount of the year of death RMD that each beneficiary distributed. Also, starting in 2017 each beneficiary will use the same RMD Divisor based on your father’s remaining life expectancy. Table I will apply and the first divisor will be 1.0 less than the divisor for what his age would have been on 12/31/2016. Beneficiaries cannot use their own life expectancies since the estate inherited the IRA.
Permalink Submitted by Sharon Wittmann on Thu, 2017-03-09 01:29
The IRA was just one of 2 assets that had to be taken care of by the estate, so the estate itself will be wrapped up very soon. The beneficiaries have all just gotten their share of the original IRA. (2 rolled it over to their own IRA, two “cashed it out”. As I understand it, the estate will file the 5329, listing the beneficiaries that satisfied the RMD requirement, in whatever combination it is. Is this correct? And you are correct in that this was a case of my father not updating his beneficiary designation after his wife died.
Permalink Submitted by Alan - IRA critic on Thu, 2017-03-09 02:06
Ouch! A non spouse beneficiary cannot roll over an inherited IRA to their own IRA, so hopefully you meant that the inherited IRA was directly transferred to an inherited IRA of the estate beneficiary rather than an IRA account of which is owned by that beneficiary.. If any distribution check was released, such a check is also an irrevocable distribution because a non spouse IRA can only be moved by direct transfer. As for the 5329 for 2016, the estate should file it and list the name and SSN of the estate beneficiaries who did the cashout and show the amount since that will more than satisfy the year of death RMD.