Inheritted IRA multiple beneficiaries RMD Help

Submitted by A T on Thu, 2017-06-29 17:24

Hello. I am hoping that I can find some answers here. My mother inherited an IRA from my father who passed away at 56 in 2007. His account was split between my mother and my grandmother. My grandmother closed the account and withdrew the funds.

My mother, thinking that her account would have been considered a spousal account, kept the account open and wanted to wait until my father would have turned 70.5 to start taking RMD. She recently got a letter from the bank saying that she may be required to take RMD so we started calling the bank. Turns out her account is considered a beneficiary account and not a spousal account. She speaks very little English and I’m not sure what happened but it looked like she took out a distribution once in 2010 for about 2k. Her income was very little at the time so she did not file taxes on her own for a couple of years after my father passed.

We never had an accountant but I am going to make an appointment to see one next week but I just want to have an idea how we should move forward at this point. The account is title “dad’s name” deceased IRRA fbo “mom’s name” and the value is about $120k. Please advise and I thank you in advance for your expertise.



Submitted by Alan - IRA critic on Thu, 2017-06-29 18:50

The actual RMD requirement in such situations often depends on determining if the spousal beneficiary is considered the sole beneficiary or not. Do you know if your grandmother closed the account by 12/31/2008 or created a separate account by that date or not?  If she did, your mother is considered the sole beneficiary because she had a separate account by the end of the year following the year of your father’s death. Her beneficiary RMDs would then not begin until the year your father would have reached 70.5. Otherwise, her RMDs needed to start in 2008 and she has a missed RMD problem. Whether she was considered the sole beneficiary or not also determines if failure to take beneficiary RMDs results in defaulting to ownership which would change the RMD status. So first, please provide the info regarding how and when your mother and grandmother split these accounts and will provide more detail then.

Submitted by A T on Thu, 2017-06-29 19:05

Hi Alan, thanks for getting back to us so quickly. I am not sure when my grandmother opened or closed her account exactly. She passed away mid 2009. My mother’s account was open in Jan 2008. Please let me know if we should go back to the bank and dig up more info. Thank you again!!!

Submitted by Alan - IRA critic on Thu, 2017-06-29 19:28

If your mother established her own separate inherited IRA in 2008, she will be considered a sole spousal beneficiary and did not have to start beneficiary RMD until around 2021. Therefore, there is no problem with missed RMDs and it is not clear why the bank thinks RMDs are required. If your mother is under 59.5 she should keep the IRA in beneficiary status, Otherwise she should roll it over to her own IRA account UNLESS she is over 66 and wants to delay RMDs for an owned IRA as long as possible. Be sure that she has named her own beneficiary on the inherited IRA now and on the owned IRA if she rolls it over. This can be confusing, and I can be more specific if you advise her current age and when you think she may need to take distributions because she needs the funds.

Submitted by A T on Thu, 2017-06-29 20:16

Hi Alan, the bank said because there were multiple beneficiaries and my mother was not a sole beneficiary. They just said we need to speak to an accountant to make sure and I think the letter was sent so they have themselves covered.My mother is now 55 and she prefers to take the RMD when my father would have turned 70.5 or in 2021 like you mentioned. With the RMD she took in 2010, does it change any of her status? Should she keep her account as is (fbo ‘her name’)? She never had an IRA account of her own. Currently she named myself and my brother as her beneficiaries on the inherited account. Sorry this is so confusing and thanks again. 

Submitted by Alan - IRA critic on Thu, 2017-06-29 21:19

  • At age 55 she should keep the IRA in inherited status as is just in case she needs to take a distribution before 59.5. As an inherited IRA such a distribution would not have a 10% penalty, but if she took a distribution from her own IRA before 59.5. then the 10% penalty would apply. But once she reaches 59.5 she should roll it over to her own IRA and will have no RMDs until the year she reaches 70.5. No sense in having to start RMDs in 2021 if she does not have to.
  • The bank is incorrect about the sole beneficiary question and your mother is not subject to RMDs until 2021. While there were 2 beneficiaries when your father passed, the separate account rules clearly state that if separate inherited IRA accounts are established by the deadline (they were), RMDs for the spouse do not begin until the year the deceased spouse would have reached 70.5. In other words, having established the separate accounts qualifies your mother for sole beneficiary status.  This is stated in IRS Reg. 1.401(a)(9)-8 Q 2.

Submitted by David Mertz on Thu, 2017-06-29 22:41

In rereading 1.401(a)(9)-8 Q&A-2, I took note of the phrase, “for years subsequent to the calendar year containing the date as of which the separate accounts were established.”  In this case, if separate accounts were established in 2008, the year following the year of the death of the owner, would this mean that the life-expectancy RMD for 2008 must be based on the entire 2017 year-end balance and grandmother’s age, even though RMDs for subsequent years are then independently determined for each separate inherited IRA?

Submitted by Alan - IRA critic on Thu, 2017-06-29 23:16

DMx, I noticed that sentence but I think the Reg should have been changed per TD 9130  which contains the following:

Separate accounts under defined contribution plansSeveral comments have been received raising administrative concerns with the rule in the final regulations applicable to defined contribution plans that recognizes separate accounts for purposes of section 401(a)(9) only after the separate account is actually established. In particular, concerns have been raised that, for employees who die late in a calendar year, it is nearly impossible to set up separate accounts by the end of the year so that they can be used to determine required minimum distributions for the year after death. In response to these comments the regulations have been modified to provide that if separate accounts, determined as of an employee’s date of death, are actually established by the end of the calendar year following the year of an employee’s death, the separate accounts can be used to determine required minimum distributions for the year following the year of the employee’s death. Under the separate account rules, post-death investment experience must be shared on a pro-rata basis until the date on which the separate accounts are actually established.

Submitted by David Mertz on Fri, 2017-06-30 00:53

Excellent!  Thanks.

Submitted by David Mertz on Fri, 2017-06-30 01:48

Researching this a bit more, T.D. 9130 changed the text from “for years subsequent to the calendar year containing the date *on* which the separate accounts were established” to “for years subsequent to the calendar year containing the date *as of* which the separate accounts were established.”  I’m having a bit difficulty understanding the distinction, but this is apparently intended to imply that, for this purpose, separate accounts established before the end of the year following the year of death are to be treated as established in the year of death.  It seems impossible to reach this interpretation without the context provided by T.D. 9130.

Submitted by Ben Meyer on Sat, 2017-07-15 00:46

Sorry for the delay in posting this posting this, but looking at the examples further down in 1.401(a)(9)-8, A-2(a)(2), the conclusion of the example regarding the surviving spouse supports the view of DMx without the need to make reference to T.D. 9130.

Submitted by Ben Meyer on Sun, 2017-07-02 18:59

  • It looks like the terms often used, “beneficiary” account and “spousal” account, are actually informal designations.  In both cases the account would be titled something as, in the situation here, “dad’s name”, deceased, IRA fbo “mom’s name”, or similar.  If the surviving spouse qualifies as the sole beneficiary, the account would be informally called a “spousal” account, with no distributions required until the decedent would have reached 70 1/2.  If not qualified as the sole beneficiary, the account for the surviving spouse would be informally called a “beneficiary” account, with RMD determined by the usual rules regarding whether the date of death is before or after the RBD, and the ages of the surviving spouse and decedent.  But the title of the account would be the same in either case.  The facts will determine the distribution requirements, not the informal naming as a “beneficiary” or a “spousal” account.  In the case where the surviving spouse makes it his/her own, the rules for owned IRAs would apply.
  • But in any event, the custodian cannot force a distribution.  Regardless of how the custodian has characterized the account, it has no way of determining whether other similar accounts from the same decedent exist at other institutions.  Even if a distribution is required, it may be aggregated with other testamentary IRA accounts and withdrawn from any of them having the same decedent and distribution requirement.  (A required 5-year distribution would be an exception.)

Submitted by A T on Thu, 2017-09-28 00:52

Thank you everyone for taking the time to answer my questions. Being that we are not very happy with the current bank. Are there any complications if my mom is to transfer the account to another bank? Thanks again all!!

Submitted by Alan - IRA critic on Thu, 2017-09-28 03:01

No complications, just move the account by direct trustee transfer to the new custodian. No RMDs are necessary until the year 2021 or so, and it is unlikely the new bank will have the info to alledge that RMDs have been missed. 

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